09 June 2003
Local authorities are being urged by Zurich Municipal and the Local Government Association (LGA) to tackle the escalating cost of compensation claims to their budgets as a result of the introduction of Conditional Fee Arrangements (CFAs) by reviewing the way claims are handled. The warning comes as risk managers and finance professionals gather today at a seminar organised by Zurich Municipal and the LGA to discuss the impact CFAs have had on councils, and what practical solutions can be taken to mitigate the effect.
The introduction of CFAs - also known as no-win, no-fee agreements - in April 2000, was designed to ensure that reductions in the legal aid budget did not restrict access to justice for those on lower incomes.
However, the burden of funding access to justice has now shifted from the Government's legal aid budget to the budgets of individual public services, including local councils and housing service providers, and ultimately on to the council tax payer or tenants. Since the introduction of CFAs, compensation claims have seen significant increases in legal fees.
The Court of Appeal delivered a judgment last month on four linked appeals concering recoverable costs under CFAs. This has started to build the parameters for After The Event (ATE) insurance fees which has been putting local authorities under stress and causing costs to escalate.
However, action still needs to be taken to mitigate the legal costs associated with CFAs. Steps include:
Processing claims swiftly and admitting liability quickly to reduce lawyers' success fees
Developing effective risk management strategies amongst front line staff and service delivery departments such as accurate record keeping and effective systems of inspection
The seminar, held at the LGA, aims to provide an overview of the scale of impact CFAs are having on local authorities, looking at identifying good practice and highlighting practical solutions. Speakers include Sheila Boyce, Chief Executive of ALARM, and Alan Hunter, Claims Manager at Zurich Municipal.
Alan Hunter, Claims Manager at Zurich Municipal, said: "CFAs were introduced to open up access to justice, but they also created a problem, because the regulations do not clearly set out what constitutes a valid amount recoverable for success fees and insurance premiums, leading to an increase in legal costs.
"Now claimants' solicitors have the ability to charge a success fee, it becomes even more important for defendants to resolve claims quickly and efficiently, before costs escalate. Local authorities need to ensure that they adopt sound risk management policy around early notification of accidents, following best practice around inspection systems and maintaining records."
LGA Chief Executive, Brian Briscoe, said:
"CFAs have become a matter of increasing concern as costs escalate. We are now close to being able to quantify the scale of these costs and reflect them in our submission to the 2004 spending review."
New research has also been commissioned to investigate the impact of the deals and the difficulties councils are facing. The results will be announced at the LGA Conference at a Zurich Municipal seminar on Wednesday, July 2.
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The Zurich Financial Services Group is an insurance-based financial services provider that focuses its activities on its key markets of North America, the United Kingdom and Continental Europe. Founded in 1872, Zurich is headquartered in Zurich, Switzerland. It has offices in approximately 60 countries and employs well over 70,000 people.
