Accidents will happen

After-the-event insurance has had a rocky time in recent months.

In addition to carrying much of the blame for fuelling the compensation culture in the UK, the industry's stability is now under scrutiny following the collapse of ATE giants Claims Direct last year and The Accident Group earlier this year.

Some commentators suggest demand for claims management companies will plummet as people start to take direct action through their solicitors.

But others claim that the sector's recent difficulties are just a short-term blip in its long-term future.

Onward ATE

Allianz Cornhill, which underwrote some of TAG's business, believes ATE insurance is here to stay. Grant Cumbley, Allianz Cornhill's solicitor liaison officer, explains: "There is a market for ATE as well as for before-the-event insurance, and we have no plans to change what we are doing in light of the collapse of TAG."

Allianz Cornhill continues to monitor such cases at key stages throughout the claims process. For example, it requires updates from solicitors and audits the files of every case, helping to reassure all those involved.

If a claims management company is involved, it pays particular attention to how the business was obtained, whether through canvassing or advertising.

Cumbley explains: "With advertising, people are required to be more proactive and to buy into it. With canvassing, less effort is required and, as such, people are more likely to abandon their claim. Business that stems from canvassing requires more attention from an underwriting point of view. It is all down to how these companies obtain the business."

John Mullin, managing director of legal expenses insurer Composite Legal Expenses, also says the ATE market is not going to disappear. "The market is not going to go away for one simple reason," he says. "ATE insurance will always be there while there is the British logic that 'it will never happen to me'. If the public can avoid paying a premium for something that is not necessary, then it will not pay for it."

Access to justice

Mullin adds that without ATE insurance many people would have limited access to justice, given the demise of legal aid in the UK. "The reality is that ATE is going to stay but it has to play its role side by side pre-paid insurance," he says.

CLE recently invested in a new online system to help solicitors handle ATE business more efficiently. More than 70% of its business comes direct from lawyers, with most of the rest coming from small claims managers.

Mullin agrees with Allianz Cornhill that business generated by advertising is much better quality business than that drummed up by canvassing.

However, some companies within the insurance industry, particularly brokers, prefer to steer clear of ATE. David Jacob, claims manager at Alliance Insurance Management, says: "We don't deal with ATE insurers. We only ever deal with pre-paid uninsured loss recovery. ATE business is damaging the industry and we do not want to be part of it."

He suggests that TAG's collapse will encourage more of the industry to turn its attention to pre-paid insurance. He says: "With pre-paid, you guarantee the service from providers and know what type of service to expect. We do not seem to have any problems recovering from insurers when we use our uninsured loss provider."

Necessary provision

Gary Stevens, a director at Welsh brokers Antur Insurance, warns brokers to avoid companies that encourage people to claim or increase the claim's value. "We want to provide a good service for our customers but we only want to provide those who need the cover," he says. "Insurance brokers have to be aware of the suppliers they use for any legal protection cover, including motor legal protection."

Stevens warns against working with any organisation that hard sells to clients, explaining: "You have to be very cautious about who you do business with. In the final analysis, it comes down to your gut feeling, which has a lot to do with experience."

ATE tends to focus on limited sectors, according to David Haynes, underwriter and product development manager at DAS. He says motor ATE is a small market because most people buy BTE insurance if they have a car.

"When buying motor insurance, ULR is usually given at the same time and so the majority of this market has pre-event legal expenses insurance covering uninsured losses," he says. "Most brokers and insurers sell it as part of their motor product and so if you have a car accident the first place to look is at your motor insurance. ATE motor and home is not a saturated area, compared to home and motor."

He continues: "As such, the ATE market tends to focus on non-motor, for example, tripping down a pot hole. There is a place for ATE, particularly in areas where people have not bought add-on legal expenses insurance. It is for people who do not have this benefit."