Other developments – 2018 Insurance market | DAC Beachcroft

Other developments

At a glance

Construction consultations: (1) 2011 Changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 and (2) Retention payments in the construction industry

Consultation on driving offences and penalties relating to causing death or serious injury

Data Protection Act 2018 – processing data for an ‘insurance purpose’

Financial Conduct Authority Business Plan 2018/19

Financial Conduct Authority consultation on SME access to the Financial Ombudsman Service

Law Commission review of the UK’s legal framework for automated vehicles

Noise-Induced Hearing Loss update

Office for Product Safety and Standards

Pre-Action Protocol for Resolution of Package Travel Claims

Solicitors Regulation Authority consultation Protecting the users of legal services

Construction consultations: (1) 2011 Changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 and (2) Retention payments in the construction industry 

Payment practices in the construction industry are currently under the spotlight with two consultations published in October 2017 and a Private Members’ Bill on retentions in the pipeline. The high profile collapse of Carillion has only served to intensify this focus and increase calls for change.

The first consultation is a post-implementation review of the 2011 changes to the Housing Grants, Construction and Regeneration Act 1996. The consultation seeks to establish how effective those changes have been and also asks some more general questions on the existing construction payment and adjudication framework. The 2011 changes included amendments to the payment provisions and allowed the use of adjudication in oral construction contracts. Both these changes have generated a significant body of case law. A simplification of the payment process would be welcome but a wholesale review seems unlikely. The risk is that minor changes could result in further uncertainty and additional case law.

The second consultation is on the practice of cash retention under construction contracts. It seeks views on the effectiveness of existing prompt and fair payment measures for retentions, the extent to which it is late and non- payment of retentions and the appropriateness of a cap on the proportion of contract value that can be held in retention, and the length of time retentions can be held. The consultation also considers alternative mechanisms.

With delays in paying retentions being commonplace, there has been a demand for change for many years. The 2017 Private Members’ Bill, the Construction Industry (Protection of Cash Retentions) Bill, fell by the wayside when Parliament was dissolved following the call for a general election. Peter Aldous MP then introduced the Construction (Retention Deposit Schemes) Bill in January 2018 which seeks to impose a mandatory deposit scheme for cash retentions which would be similar to the tenancy deposit scheme. The second reading of the Bill was to be heard in June but has now been further delayed until 26 October 2018. At the time of writing, the Government has still not issued its findings from the consultation on retentions or made any proposals for change. Although it is far from clear what changes will actually be made, it is almost certain that a change to the existing retentions arrangements will be made in the near future.


Consultation on driving offences and penalties relating to causing death or serious injury 

This consultation ended in February 2017 but the results were updated in October 2017, showing considerable support for increasing the maximum penalty for causing death by dangerous driving and causing death by careless driving while under the influence of drink or drugs from 14 years to life imprisonment. There was also significant support for creating a new offence of causing serious injury by careless driving.

Following recent high profile cases stemming from collisions involving large goods vehicles, it is likely the Government will want to increase the maximum sentences for existing motoring offences where there is a fatality on the road and to introduce a new one where someone is seriously injured as a result of careless driving if legislative time allows.


Data Protection Act 2018 – processing data for an ‘insurance purpose’ 

Under the General Data Protection Regulation, the only available legal ground for processing special categories of personal data (in most cases) for the insurance sector is consent.

In reality, this is something that can prove impossible to obtain in a complex insurance distribution chain. There are also other problematic issues such as whether the consent is freely given if it is required in order to take out a policy or make a claim and what happens to the policy or claims in the event that consent is withdrawn.

The Association of British Insurers, Lloyd’s Market Association and other insurance industry bodies, assisted by DAC Beachcroft, worked with the Government on a key addition to the Data Protection Act 2018 which creates a new legal ground for processing certain special categories of personal data (such as health data) and information on criminal convictions where such processing is necessary for an insurance purpose and is in the substantial public interest. Importantly, this does not exempt the insurance industry from any of the other controls around handling such data, but it should make the placement, underwriting, fraud prevention and claims handling process easier by removing the requirement to obtain consent from insureds, claimants or other third parties, in most cases.

This is an extremely positive development and demonstrates recognition by the Government that insurance is in the substantial public interest.


Financial Conduct Authority Business Plan 2018/19 

The Financial Conduct Authority (FCA) Business Plan 2018/19, published in April 2018, details the UK regulator’s priorities
for the next year. Perhaps the main change is the impact of the FCA’s allocation of significant resources to Brexit on FCA activities that are not related to EU withdrawal.

The FCA’s priorities for insurance include:

  • Firms’ culture and governance. The FCA plans a broader look at remuneration and, for general insurers, the introduction of the Senior Managers and Certification Regime on 10 December 2018.
  • Financial crime and anti-money laundering.
  • Data security, resilience and outsourcing. The FCA is focusing on firms’ resilience to cyber-attacks and technology outages. The FCA is also looking at outsourcing where the service provider supports many firms, so the impact of any disruption is magnified.
  • Innovation, big data, technology and competition. As well as continuing support for innovation (for example, through the regulatory sandbox), the FCA will review the use of big data by firms.
  • Treatment of existing customers. There are a number of themes including publishing further views on ensuring insurance pricing practices work well for retail customers; looking at the rules that claims management companies need to follow when the FCA takes over their regulation in spring 2019; considering the needs of older customers; and looking at claims inflation.
  • Implementation of the Insurance Distribution Directive.
  • Wholesale insurance brokers and competition. The FCA will publish interim findings from its market study


Financial Conduct Authority consultation on SME access to the Financial Ombudsman Service 

In January 2018, the Financial Conduct Authority published a consultation paper on the access of small and medium-sized enterprises (SMEs) to the Financial Ombudsman Service (FOS). The intention is to extend access to more than 80% of the 200,000 SMEs who are currently not eligible, as only a very small proportion of them presently take their disputes with financial services firms to court. The World Bank estimates that taking a dispute to court might cost an SME in the UK up to 44% of the value of its claim.

The existing definition of an ‘eligible complainant’ includes micro-enterprises with fewer than ten employees and a turnover or annual balance sheet that does not exceed €2 million. The proposal is to change the definition to include a new category of ‘small businesses’ that are too large to be ‘micro-enterprises’ but have an annual turnover below £6.5 million, an annual balance sheet below £5 million and fewer than 50 employees. The eligibility threshold for charities and trusts will be expanded to align with this definition as well. The proposals are not designed to cover disputes where the redress sought would significantly exceed the FOS’s binding award limit of £150,000.

The consultation closed on 22 April 2018 and a Policy Statement is expected at the time of writing. It is anticipated that the rules will come into effect on 1 December 2018.


Law Commission review of the UK’s legal framework for automated vehicles 

In March, the Government reaffirmed its commitment to developing automated vehicle (AV) technologies by commissioning a far-reaching review of the UK’s driving laws by the Law Commission of England & Wales and the Scottish Law Commission.

There are still many more questions than there are answers when it comes to the interaction of AVs with the long-established rules of the road, especially as existing driving laws assume a human driver with a steering wheel and manual controls. The three-year review will see the Law Commission take a deep dive into the UK’s driving laws and it is anticipated that there will be an initial scoping paper by the end of this year. Industry stakeholders should expect further consultation on the subject in the not too distant future.

While key issues such as data and cybersecurity are not in scope at this stage, the review will look to address issues such as:

  • Assessing criminal and civil liability where there is an element of shared control between driver and machine.
  • Accommodating automation within the public transport network, and catering to the likely change in private car usage models including consumer demand for mobility as a service.
  • New criminal offences linked to certain types of interference with an automated vehicle, such as unauthorised modifications that may impede safe operation.
  • Ensuring the safety and protection of other road users.

Leading the Law Commission’s review in England and Wales, Nicholas Paines QC said that British roads, already among the safest in Europe, will be made yet safer by the advent of AV technologies provided our laws are ready for them.

These challenges are replicated where Unmanned Aerial Vehicles, more commonly known as drones, are concerned. Here, the British Standards Institute is currently developing standards to promote the safe use of drones that will then be consulted on before they are adopted. There is a wide acceptance that any standards will need to be aligned at an international level.

As the use of drones both for entertainment and commercial purposes increases, so does the need for more stringent regulation. In May the Air Navigation Order 2016 was duly amended to ensure the safety of the aircraft in the UK’s airspace and in July the Government announced a consultation proposing policies for drone use and enforcement.

Alongside regulation, so too drone insurance is on the increase. Commercial drones are already required to carry third-party insurance in the UK, and it is widely anticipated that a range of policies will come to market that provides for both first- and third-party cover, to include cover for hacking and cybercrime among other things.

Finally, in June, the Department for Transport made the necessary changes to Regulation 110 of the Road Vehicles (Construction and Use) Regulations 1986 to enable remote control parking (RCP) to be used legally, following a period of consultation. Regulation 110, which outlaws the use of handheld mobile devices while in control of a vehicle, now specifies RCP as a lawful exception, although the user must remain in full control of the operation at all times. This is in keeping with the Government’s promise of agile, rolling reform to enable ‘near to market’ driver assistance systems to be used for the benefit of consumers as the technology develops. The Highway Code will also be amended in places to provide guidance on the safe operation of RCP.


Noise Induced Hearing Loss update 

The squeeze on whiplash claims has seen a number of firms of solicitors move to industrial disease claims, particularly noise induced hearing loss (NIHL), as solicitors seek to maintain their fee income in personal injury work.

In 2017, the Civil Justice Council’s working party, chaired by DAC Beachcroft Partner, Andrew Parker, published a report recommending fixed recoverable costs in NIHL claims, together with changes to the pre-action process which will require claimants to provide more information at the time claims are intimated, including an audiogram demonstrating that they have developed NIHL. The report recommends the use of standard directions in litigation, including separate trials on limitation where appropriate.

While the scope to recover damages and costs for NIHL may be under scrutiny, in Goldscheider v Royal Opera House Covent Garden Foundation (2018) the Claimant recovered damages for the acoustic shock suffered during rehearsals of Wagner’s Ring Cycle. The threshold at which acoustic shock may cause injury remains to be confirmed, but this success may see claims presented by other musicians and employees of entertainment venues.


Office for Product Safety and Standards 

The new Office for Product Safety and Standards (OPSS) was launched in 2017. The OPSS acts as a policy and agenda-setting body, sitting above but not replacing locally based regulators: enforcement of product safety remains with Local Authority Trading Standards departments.

The OPSS has introduced a new Code of Practice for product safety recalls. The Code is not mandatory but following the Code offers business the means to demonstrate compliance with product safety legislation.

The Code also focuses on increasing traceability and tracking emerging product safety issues. Field quality complaints can often be the first sign of potential trouble ahead. The Code should also provide greater predictability about how regulators will react and encouragement for Primary Authority relationships. These enable businesses to partner with a Local Authority to gain assured regulatory advice and legal confirmations which can be relied upon.

The formation of the OPSS and greater use of Primary Authority arrangements could be the springboard for greater consistency in the application of product safety laws and best practice.

Whether businesses will embrace the more joined-up approach offered by the OPSS may depend on how effectively the new Code is communicated as an effective business tool, driving compliance and mitigating risk, offering business greater certainty about enforcement.


Pre-Action Protocol for Resolution of Package Travel Claims 

Following the creation of this new Pre-Action Protocol, the fixed costs applicable to public liability claims will apply to claims for gastric illness contracted on package holidays.

The Pre-Action Protocol does not require claims to be submitted through a Portal, but instead sees them commenced by letters of claim and will apply where “no letter of claim was sent before 7 May 2018”. Taking into account the fact that many claims require investigations overseas, defendants have 42 days in which to acknowledge claims (rather than 21) and six months (instead of three) in which to respond on liability.

Concern at the exploitation of this type of claim by fraudsters has seen the Protocol provide that claimants must provide the booking reference for their holiday when presenting the claim, and, unlike the position for other claims proceeding within the Portal, experts should be jointly selected and the defendant can raise questions of the expert on whose evidence the claimant relies.

The extension of fixed costs and an introduction of the Pre-Action Protocol will clearly reduce the overall cost of claims for travel sickness and we may now see the volume of such claims fall.


Solicitors Regulation Authority consultation – Protecting the users of legal services 

The Solicitors Regulation Authority (SRA) has once again proposed a significant scaling back of the scope of the compulsory layer of professional indemnity insurance for solicitors in private practice in England and Wales. Its main objective is to reduce the cost of practising, particularly for small firms of solicitors, following calls from the UK Competition and Markets Authority to make the market in legal services more open and competitive.

The SRA proposals include reducing the minimum cover from the current £2 million (£3 million for incorporated practices) to £500,000, or £1 million for firms requiring cover for conveyancing. It also proposes excluding businesses with a turnover of more than £2 million from the compulsory cover and capping run-off cover.

Many have questioned whether these measures will materially reduce premiums, given that currently, most claims fall within the proposed new limits. In any event, many solicitors’ firms are expected to buy a top-up cover to at least the level of the current minimum levels, which is likely to cancel out any possible financial benefit while adding complication and cost to the process. It is also worth remembering that a similar proposal to reduce the minimum level of cover was rejected by the Legal Services Board in 2014. There must, therefore, be some doubt as to whether the proposals will be approved in full this time around.