The Implications of Removing ATE Insurance from the UK Market
The Jackson Reforms are soon to come into effect in the UK, which spells a major shake-up for civil action/personal injury claims. One of the major changes highlighted by the reforms is the effective removal of After the Event Insurance from the market.
What is ATE Insurance and who uses it?
After the Event Insurance is a very specialist type of insurance, usually taken out by law firms or individuals involved with legal action. Although not exclusively, it is usually taken out by the claimant or a lawyer on behalf of a claimant. ATE Insurance, as it is commonly known, provides cover that will pay out if the legal action is unsuccessful, covering the cost of the litigation. If the claimant wins then the ATE insurance premium is recoverable from the other side. In this respect ATE is a very low risk strategy; if you win, the other side pays the premium. If you lose, the insurance covers the costs of the litigation. It is though that this encourages litigation as claimants have nothing to lose. It is also regarded by some as a useful product that makes litigation more accessible for those who might not be able to afford it. ATE is usually taken out in ‘No Win, No Fee’ cases, again minimising the risk for claimants.
What is happening to ATE Insurance?
The Jackson Reforms come into effect in April 2013, at which point ATE premiums will no longer be recoverable from the losing side. Prior to the reforms premiums are paid by the losing side, on top of the other costs such as compensation and legal fees. As mentioned above, this makes pursuing a claim a relatively cheap exercise. The reforms dictate that even if a claimant wins the claim, they still have to pay the ATE premiums.
What are the consequences of this?
The immediate consequences of the reforms is that there has been a large increase in the amount of claims, as people and lawyers rush to get their cases in before the reforms take effect. This was expected and doesn’t come as a surprise. Once in place the consequences of the reforms, in regards to ATE insurance, are straight forward; ATE premiums will not be recoverable from the losing side. Instead premiums will have to be paid out of any damages awarded. This could mean that a sizeable chunk of the damages pay-out could go immediately to the insurer, not to the actual victim. This is designed to curb what the government sees as the compensation culture that is on the increase in the UK. Whilst many have celebrated the reforms for this reason, others have stated that it will severely limit less well-off peoples access to funding litigation.
There is a consensus in the industry that more detail is required as the reforms are still fairly general, despite being only 4 months off. ATE doesn’t just aid personal injury cases, which it is often attributed to. There are many different ATE insurance products and areas of litigation that will all be affected, such as commercial ATE insurance and clinical negligence ATE insurance. There is little doubt that soon after the reforms are introduced, companies will offer new products to replace what will no longer be available. Only time will tell just how the ATE insurance industry and legal profession will respond to the changes.