As we look toward 2014, it is important to consider events this past year that will affect the claims management industry next year and on an ongoing basis—not only in the U.S. but also globally. A number of companies in claims management are multinationals, and having significant international operations requires that they be well informed of claims-generating events and regulatory laws affecting claims not only in the U.S. but also in each country where they have operations. While many countries have similar laws and regulations—as countries often adopt legislation first enacted in other nations—certain insurance and claims regulations can be unique. Statutes in other countries can serve as precursors for U.S. legislation, and monitoring government rules internationally can be useful for both U.S. risk management and strategic planning.
Following are some key governmental activities affecting the claims industry this year that are worth noting.
U.K. Enterprise & Regulatory Reform Act and LASPO Act
U.K. insurers and employers are now feeling the impact of new regulations after years of being subject to what many companies considered to be an unreasonable, inequitable legal position for defendants when facing claims for breaches in health and safety legislation. Now with a new position enabled by Section 69 of the Enterprise and Regulatory Reform Act and the switchover from old to new regimes for accidents occurring on or after Oct. 1, 2013, the benefits of putting up a strong defense could begin to be seen by companies contesting alleged breaches.
Section 69 (s69) applies to earlier regulations enacted under the Health and Safety at Work Act etc 1974 and now modifies those regulations. Under the effects of s69, certain claims may require the unraveling of older statutes not revoked by the “six pack” regulations—six groups of U.K. regulations relevant to health, safety, and welfare at work that were enacted from 1992 to 1996. The purpose of the “six pack” was to enact a series of European Union directives. Under these regulations, employees of public bodies could sue for a breach of the relevant directive, whereas a private sector worker could not. The U.K. government was aware of this discrepancy but had not intervened.
While there is a considerable diversity of opinion in the U.K. on the likely outcome of reforms enacted by the Ministry of Justice during 2013, it is arguable that s69 could surpass every other attempt to curb claims inflation across the U.K. Before s69 came into effect this past October, any alleged breach of health and safety legislation was actionable in civil law unless the regulations provided otherwise. This was a statutory right that is generally believed to have contributed to quick settlements rather than defendants pushing for a detailed investigation that could lead to a diminished settlement or judgment in their favor.
The new section reverses this position, imposing a burden on claimants to prove negligence, even against employers, thereby potentially opening up to insurers more potent defense arguments with regard to primary liability and most likely with regard to increased contributory negligence percentage reductions that are more normally associated with common law cases.
The U.K. government also has enacted reforms to civil litigation funding and costs in England and Wales. These changes affect how civil cases are funded and the costs involved in bringing those cases. These reforms are in part a result of changes in legislation—part two of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO)—which came into effect on April 1, 2013.
The reforms apply across civil litigation but have a particular impact in personal injury cases, where no win no fee agreements (aka conditional fee agreements, or CFAs) are used significantly. Some important changes in the act include:
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A new sanction on defendants to encourage earlier settlement of claims.
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Referral fees are banned in personal injury cases.
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No win no fee CFAs remain available in civil cases, but the additional costs involved (success fees and insurance premiums) are no longer payable by the losing side.
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No win no fee damages-based agreements (DBAs) are available in civil litigation for the first time.
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Claimants’ damages are protected: The fee that a successful claimant has to pay the lawyer—success fees in CFAs or payment in DBAs—is capped at 25 percent of the damages recovered, excluding damages for future care and loss.
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General damages for non-pecuniary loss such as pain, suffering, and loss of amenity are increased by 10 percent.
Asia Pacific Developments
Earlier this year, the Hong Kong government completed a three-month public consultation on legislative proposals for establishing an Independent Insurance Authority (IIA). In the proposed legislation, the IIA would be the lead regulator for all insurance intermediaries, including banks. Subject to the views of the Legislative Council and input from the public, the IIA is expected to begin operations by 2015. Claims adjusters are unlikely to fall within the current proposed IIA regulatory guidelines, which are expected to become more specific as things evolve.
In May 2013, the Financial Services Act became effective in Malaysia. The legacy Insurance Act 1996—together with a few other older acts—has been repealed with the implementation of this new act. The major change for the loss adjusting industry is that Bank Negara Malaysia (Malaysia’s central bank) will no longer issue annual licenses for the industry. Instead, all adjusters are required to come under a registration framework with the central bank, which is still to be defined. From the market perspective, it is anticipated that the industry will become even more competitive now that the barrier of entry has been removed. Any person(s), whether local or foreign, will be allowed to enter the industry as long as their application is approved and registered with Bank Negara. However, there is uncertainty over the implications of the act on the limitation of foreign ownership.
Recently, there has been a greater emphasis on data protection in several Asian countries, specifically Singapore and Malaysia, requiring more rigorous security in the handling of personal data, which directly affects claims adjusting.
Singapore’s Personal Data Protection Act 2012 will come into force early in July 2014, introducing new rules governing the collection, use, disclosure, and care of personal data. The new law generally recognizes both the rights of individuals to protect their personal data from misuse and the needs of organizations to collect, use, or disclose personal data for legitimate and reasonable purposes.
Malaysia’s Personal Data Protection Act 2010 (PDPA) went into effect in mid-August 2013 after several years of delays. PDPA was designed to safeguard personal data by requiring the data user to comply with certain obligations and conferring certain rights to the data subject in relation to his personal data.
U.S. Legislation
In the U.S., the last major piece of proposed legislation focused on claims was H.R. 2156, which was assigned to a congressional committee in May 2013. The committee will consider the bill before possibly sending it on to the House or Senate as a whole. It was essentially a reintroduction of H.R. 6415, the Claims Licensing Advancement for Interstate Matters Act (CLAIM Act) that was referred to a congressional committee in September 2012 instead of being enacted—it died in committee. Overall, the CLAIM Act promoted uniformity and reciprocity in adjuster licensing across state lines and accelerated adjusting for disasters.