Personal Injury Claims Statistics: Is there a Compensation Claim Culture in the United Kingdom

Abstract

This article seeks to identify the most reliable sources of statistical information about the workings of the personal injury litigation system in the United Kingdom, to present their principal date in clear, straightforward and accessible form, and to subject them to critical analysis. These figures provide the basis for an initial examination of the claim that a damaging compensation culture has developed in the UK in recent years.

Introduction

At a time when the personal injury litigation system is attracting renewed attention - stimulated above all by claims of a compensation culture - attempts at serious evaluation are undermined by the lack of up-to-date statistical information about its workings. In the UK there has been no comprehensive empirical investigation of the system since the time of the Pearson Royal Commission (1978) and the personal injury survey conducted by the Oxford Centre for Social Legal Studies (“the Oxford survey”). A subsequent study undertaken for the Civil Justice Review was very small-scale and paid disproportionate attention to tried cases as opposed to out-of-court settlements, disqualifying it as a reliable source of empirical evidence about the personal injury litigation system as a whole.

The purpose of the current article is to prevent in simple and accessible form some basic facts about the modern personal injury litigation system in the UK, drawing upon the most reliable data sources that are available. In the first part of the article (“Sources”), we identify three key sources of statistical information about claims in tort, explaining how their data is assembled and giving a brief overview of what we can learn from them, focusing on data relating to the number and cost (including the legal cost) of claims. In the second part (“Analysis”), we consider trends in these data over time, seeking to identify the major factors that may have influenced claims frequency and average claims costs. An important ulterior goal is to give at least a preliminary evaluation of the contention that both the number and the cost of claims have been driven to record levels. If the figures bear this out, it would lend support to those who consider the UK to be gripped by a compensation culture, and undermine the Government’s view that, although the compensation culture is a myth, the public’s erroneous belief that it exists results in real and costly burdens.

Sources

Three sources relating to tort claims are examined in outline and their main findings summarised. These sources are, first, the data supplied in recent years by the Government’s Compensation Recovery Unit concerning the total number of claims made for personal injury each year; secondly, actuarial analyses based on over a million claims and produced for successive reports commissioned by the Association of British Insurers; and finally, the detailed figures collated in relation to clinical negligence claims made against the National Health Service. A distinguishing feature of all three sources of information is that they are founded upon a very wide statistical base.

Compensation Recovery Unit statistics

Since 1990, the Compensation Recovery Unit (“CRU”) has administered the scheme which enables the state to recover from tort damages any social security benefit paid as a result of a relevant accident or disease. An essential part of this scheme is that all compensators must provide prompt notification to CRU of any claim for personal injury made against them. As a result CRU presently holds the most comprehensive and reliable data on the number of current personal injury claims. It is a potentially rich source of information about various aspects of the tort system which hitherto has received little attention, partly because only some of the information gathered has been made public.

However, there are particular difficulties in using the statistics which relate to claims made before 2000. They were not made widely available and their full details remain unknown outside of CRU. In addition, until 1997 benefits could not be recovered from damages awards of £2,500 or below, and compensators were not required to report claims that fell within this category. As a result, the Department of Social Security (“DSS”) estimated that half of all the claims made were not reported at all. Therefore the earlier figures, where available, reveal only part of the compensation picture. It was only in October 1997 that the exemption for small payments was removed and the reporting requirement extended to cover all claims, no matter how small. By contrast with these earlier figures, those for current claims are very accurate because the rate of compliance with the increased reporting requirement is very high. This is partly because standardised procedures have now been built into the claims handling procedures of the insurers and other bodies who, in practice, constitute the real defendants in tort claims.

From Table 1 it can be seen that the number of claims has increased only by three per cent in the last five years. The more detailed figures in the tables below reveal that not all types of injury have reflected in this small increase. In particular, it is notable that accident claims have actually declined, and it is the substantial rise in claims for disease that accounts for the overall increase.

Table 2 reveals that in the past five years there has been a five per cent fall in the overall number of accident claims. Whereas the number of motor claims has remained remarkably stable, clinical negligence claims have fallen by 34 per cent, employers’ liability by 21 per cent, and public liability by 7 per cent. Motor claims comprise almost 70 per cent of the total.

Table 3 illustrates that the number of notifications of disease claims has fluctuated widely. Numbers dropped by over a quarter in the three years to 2003, but in the next year claims more than doubled. Although they again declined last year, they were still 42 per cent higher than five years previously. An explanation for this is given in the analysis section in the second part of this article.

Table 1: Total number of claims

notified since 2000 (Source: CRU)

Overall number of claims before 2000

In the year October 1996 to September 1997 there were just over 30,000 notifications of claims each month, the total for the year being 361,819. This was at a time when the notification requirement was more limited because of the exemption for small payments of damages. When the limitation was removed in October 1997, notifications immediately doubled to over 58,000 a month, and amounted to 705,232 in the year to September 1998. However, the significant feature to note is that claims have not increased substantially since that time. The 1997-1998 figure is almost the same as that recorded for 2002-2003. It is true that claims increased in the following two years. However, the increase was at most about 10 per cent and if we were to discount the figures relating to diseases (which rose for particular short-term reasons), we would find that tort claims have actually declined in number.

The Insurers’ Bodily Injury Awards Studies

Commissioned by the Association of British Insurers and by the International Underwriting Association of London, three successive reports have been published into claims received by insurers for compensation for personal injury resulting from use of motor vehicles. The first report appeared in 1997, the second in 1999, and the most recent in 2003. They investigate injury claims trends in the UK and the forces that affect them.

The studies claim to be the biggest exercise of their kind ever undertaken. Although the accounts they give of the changes in the law and legal system are unexceptional, it is certainly true that the actuarial analyses has been carried out using a very wide statistical base: for the third report 1.1 million personal injury claims made against motor insurers were analysed, the information being obtained from insurers representing 90 per cent of the overall motor insurance market. Replying in part upon the earlier reports, the 2003 report produces figures which cover motor accidents which occurred between 1991 and 2000, and consists of 208 pages of statistics and commentary.

However, the reports do not cover claims made other than against insurers, nor do they deal with injuries other than those involving a motor vehicle. Unlike the CRU statistics, therefore, the reports do not attempt to be comprehensive of all personal injury claims (or even of uninsured personal injury claims) and neither do they focus on very precise claims figures for any particular year.

Claim frequency

Table 4 below reveals that claim frequency – the number of claims made in relation to the number of policies issued – increased by an average of 3 per cent a year from 1991 – 2000, even though it fell by an average of 4.1 per cent a year in 1999 and 2000. The fall was due to a decline in very small claims. The standardised index in the table below shows the changes in claims frequency compared to that experienced in 1992, that year being taken as the base year for present purposes.

Claim severity

Table 5 below reveals that claims severity – the average cost of each claim made – increased by an average of 6.7 per cent a year from 1991 – 2000, with very marked increases in the last two years. Again the standardised index is set with 1992 as the base year.

Burning cost

Burning cost is a term widely used in the insurance industry to represent to the claim cost per policy. It is made up of a combination of claim frequency and claim severity, that is, in effect Tables 4 and 5 below. Table 6 below again uses 1992 as the base year and reveals that the cost per policy increased by an average of 9.9 per cent a year from 1991 – 2000, as against an average rise in national earnings of 4.2 per cent. As compared with 1991, claims cost in 2000 had risen by 133 per cent compared to a rise in national average earnings of 45 per cent. However, from 1998 the rise in burning costs was much less steep and was only 6.6 per cent in 2000. This reflected the drop in claim frequency, although claim severity continued to increase. Although claim frequency declined in these later years, it was still 29 per cent higher than it was in 1992.

Legal costs

Throughout the period studied, legal costs, including both claimant and defendant costs, averaged 30 per cent of the total motor personal injury claims. This means that legal costs continued to increase by more than double the rate of the rise of national average earnings.

Table 4: Frequency of personal injury claims

from motor vehicle use (Source: LIRMA/IUAL)

National Health Service statistics

The proper recording of National Health Service (“NHS”) clinical negligence compensation costs began only in 1996. Details of annual NHS expenditure on clinical negligence claims in England may be found in the annual NHS accounts for the period from 1996 to 2002, at which date the NHS Litigation Authority (the “NHSLA”) took over full responsibility for all such claims. The NHSLA’s staged “call in” of existing NHS claims made against the primary care trusts before 2002 prevents meaningful comparison of its own figures over time, but combined with information in the NHS accounts, they allow comparison from 1996 onwards of the total compensation costs in England. From 2002 the NHSLA statistics provide a complete picture of clinical negligence claims, volumes and costs.

Before 1996 the picture is incomplete, with a limited amount of information available in official reports, answers to parliamentary questions, and various independent studies. It is difficult to make comparisons because of the differences in the methods employed, but some information about trends may be drawn from Fenn et al.’s longitudinal study of negligence claims arising from treatment in the Oxfordshire health authority area from the early 1980s to 1999.

Table 5: Severity of personal injury claims

from motor vehicle use (Source: LIRMA/IUAL)

Number of claims

There has undoubtedly been a very great increase in clinical negligence claims in the last 30 or so years. The Pearson Commission reported in 1978 that the number of claims of malpractice against doctors and dentists (including those in private practice) had been running at about 500 a year. By 1990-1991, the estimated number of new medical claims made against the NHS in England had risen to between 5419 and 6979 for the year. The Oxfordshire study reported a “steady growth” in new claims in the period 1974-1998. In answers to Parliamentary questions in 2005, the number of claims made from 1996-2004 was broken down as illustrated in Table 7, using information supplied by the NHSLA.

These figures confirmed the “continuation of the downward trend” in claims numbers that has been evident in recent years. They now are close to the lowest estimate for the year 1990-1991, coming down from a peak in the period 1997-2002.

Claims settled and closed

The NHSLA’s analysis of all clinical negligence claims handled since its inception in 1995 reveals that 45 per cent were abandoned by the claimant and 52 per cent settled out of court; 2 per cent were concluded by a court judgment for the claimant (including court approvals of settlements negotiated on behalf of children); and 0.6 per cent by judgment for the NHS. In 2004-2005 the NHSLA “closed” a total of 8,393 claims (irrespective of whether or not they closed with the payment of damages or costs). Assuming half or more involved the payment of damages, the number of “settled” claims (including those resolved in court) has clearly risen significantly from the early 1990s, when it was reported that 1618 and 1751 claims had been settled in 1990-1991 and 1991-1992 respectively. This is further confirmed by the finding of the Oxfordshire study that the number of closed claims more than doubled in the period 1990-1998, with the rate of closed cases per 1000 finished consultant episodes rising from 0.46 in 1990 to 0.91 in 1998, a rate of increase of about 7 per cent a year. These increases are not matched by comparable increases in the number of new claims over that period, and it seems likely that they reflect a rise in the number of new claims made before 1990 but taking several years to settle.

Table 7: Total number of clinical negligence

claims reported (Source: Hansard)

Cost of claims

A complete picture of the NHS’s annual expenditure on clinical negligence compensation in England is available from 1996 (Table 8). This reveals a general upwards trend up to and including the year 2004-2005. The figures are startlingly higher than those available for the start of the 1990’s, when the annual cost of clinical negligence compensation was reported to have been £53.2 and £51.3m in 1990-1991 and 1991-1992 respectively. Even these are very much higher than the estimated figure for 1974-75 of £1m. In claims for clinical negligence that were closed by the NHSLA in 2004-2005, defence and claimant costs were equal to, respectively, 13.76 per cent and 19.81 per cent of damages.

Table 8: Total payments made by the NHS for clinical

negligence 1996-2005 (Source: NHS/NHSLA)

Outstanding liabilities for clinical negligence

One of the most frequently misapplied statistics in the current compensation culture debate is the annual estimate of the NHS’s outstanding liabilities for clinical negligence (including both known and unknown but expected claims, and taking into account the likelihood of settlement). This has risen from £3.2 billion in 1999 to £5.9 billion in 2003 and £7.8 billion in 2004. The figures refer to liabilities that the NHS claims will arise over a longer period of time, and are very much greater than the sums that are actually paid out on an annual basis. Estimating the cost of outstanding liabilities is an exercise that is fraught with difficulties and the resulting figure representing a “worst case” scenario has been heavily criticised. Although the estimate of outstanding liabilities is frequently cited in the press and media, it must be handled with care. It would be quite wrong, for example, to use it to calculate the percentage of the annual NHS budget that is currently spent on clinical negligence compensation.

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