Compensation culture is a 'myth'

Chairman of the Better Regulation Task Force, David Arculus, concluded there was no actual compensation culture in the UK because the number of successful claims was actually falling.

However, the myth that there were "vast wads of cash" to be won was costing companies and the public sector hundreds of millions of pounds in unnecessary bureaucracy, he said.

"It's important that spurious claims are weeded out of the system," said Mr Arculus. "There are not vast wads of cash out there. The number of registered claims is falling at the present time by 60,000 in the last year. But there may be lots of people out there willing to have a go.

"There may well be a compensation-seeking culture or a claims culture."

The Government should move to regulate claims management companies if they fail to put their house in order by the end of next year, the taskforce said in its report 'Better routes to redress'. It also called for an end to "totally distasteful" advertising on NHS premises by claims management companies, which seek to win people's business on a "no win, no fee" basis.

Fear of litigation

Mr Arculus said the fear of litigation was making town halls and other groups cancel events unnecessarily and may also lead to businesses becoming less innovative.

"The compensation culture is a myth but the cost of this belief is very real," said the report. "Almost everyone we spoke to in the course of this study told us that they did not believe that there is a compensation culture in the UK.

"They argued that the reality is somewhat different because the number of accident claims, including personal injury claims, is going down."

It noted that one large council spent more than £2 million out of a £22 million roads budget on handling compensation claims in 2003-2004. It added that some of the claims would of course be genuine but a large number would be "vexatious or frivolous".

The task force suggested that the Claims Standards Federation - the trade organisation representing claims management companies which procure "no win, no fee" cases - should set out a code of practice by September next year. If it failed to do so, the Department for Constitutional Affairs (DCA) should step in and regulate the sector at the end of 2005, it added.

The report also said the DCA should research the impact of allowing more personal injury cases to be dealt with in the small claims court. The current limit on such claims is just £1,000. "The task force believes that the time is now right to examine again whether the limit for personal injury claims should be raised above £1,000,'' it said.

The media was partly responsible for perpetuating the myth of a British compensation culture, the report added.

Reaction to the report

DCA minister David Lammy said: "The Government welcomes the report's key finding that the compensation culture is a myth but it is nevertheless a damaging myth that needs to be tackled. What concerns me is that this perception is being fuelled by the 'have a go culture'. Our aim must be to discourage frivolous claims but to ensure that those with a genuine claim can access their rights.

"I will be discussing the report and its recommendations with all those who have a part to play in finding solutions to the problem - progress can only be made through working together."

The Government would respond fully within 60 working days, he added.

Law Society chief executive Janet Paraskeva said: "This report reinforces what the Law Society has been saying for a long time that the idea of Britain being compensation crazy is itself insane. But lawyers and insurers must work together to ensure the costs of getting compensation don't outweigh the cost of compensation itself."

The Association of British Insurers said it backed calls in the report for better rehabilitation services, more cost effective legal processes and greater use of mediation and alternative dispute resolution in personal injury cases.

Culture shift

Mary Francis, the ABI's Director General, said: "This report bears out what insurers have been saying about the importance of reforming the legal process. Reform will help people with a legitimate personal injury claim to have their cases settled more quickly. And reform will ensure that the costs of compensation are kept under control.

"Insurance enables claimants to receive the compensation they are entitled to. But high frictional legal costs, averaging 40% of damages paid, mean that the system needs to be reformed. This proportion is far greater in low value cases, so we fully support the recommendation to review the small claims limit."

Sally Low of the British Chambers of Commerce added that the high legal costs associated with litigation only served to increase the cost of insurance. "We now need to see a culture shift away from litigation and explore alternative methods of redress," she said.

Bill Callaghan, chairman of the Health and Safety Commission, commented: "I am delighted that the Better Regulation Task Force's report dispels the myth of the compensation culture. I also welcome the report's support for our policy that sensible risk management is the best way to prevent litigation or the threat of litigation."

Johnny Thomson