Compensation culture is 'bad for society'

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The UK's compensation culture is having perverse social consequences, the chair of the justice committee has said.

Sir Alan Beith MP, chair of the justice committee, was speaking at an event held by the Association of British Insurers (ABI) and Keoghs, at Liberal Democrat conference entitled, 'The UK's compensation culture: Good or bad for consumers?'

"An ever-more litigious society is no good for anybody," he said. "The consequences for society can be measured in restrictions to social occasions, from village shows to voluntary snow clearing, people are becoming risk-averse due to the fear of litigation," he said.

Fear of litigation has become so apparent, Beith told the audience, that people are afraid of clearing snow from outside their house in the winter, because if they do not do it quite well enough and somebody slips over, they are then liable.

He was keen to point out that risk assessment is no bad thing in principle – but that "risk assessment should not be risk aversion".

"The slide from risk assessment to risk aversion has been encouraged by the compensation culture," he said.

Consequences are also felt in people's pockets as costs are then transferred through the system with higher insurance premiums.

Otto Thoresen, director general of the Association of British Insurers (ABI), reiterated how people have to "foot the bill" for the growth in the compensation culture.

"Talking about a leading supermarket chain, he informed the audience that, the profit of five of their stores is used to fund their personal injury claims alone".

"The man in the street should not have to pay a higher price for his baked beans just to pay for the compensation culture," he said.

Moving on to the Jackson reforms and the ban on referral fees, Thoresen said the ABI believes that both are critical.

In terms of the Jackson reforms, he pushed for them to be implemented in full.

Dominic Clayden, director of claims at Aviva, reiterated the need to implement the package of reforms in full. Welcoming what the government is doing, he pushed for speed in implementing the reforms.

"Every month the system stays as it is, premiums continue to go up," he said.

Steve Thomas, director of market affairs at Keoghs, also voiced his support for the Jackson reforms, but in reference to Jack Straw's Motor Insurance Regulation Bill, which specifically calls for a ban on payment of referral fees, he reminded the audience that the compensation culture does not only affect insurance premiums.

"Cost is loaded into the system at every level… it is worth remembering that so many other things are affected," he said.

Championing the consumer, Richard Lloyd, executive director of Which?, urged the insurance industry to ensure the reduction in claims costs are passed on to the consumer.