EXECUTIVE SUMMARY The turbulent course of market-changing reform continues A post-LASPO landscape is emerging, three years after implementation Proposed government reforms would have a game-changing impact Claimant representatives are facing further radical structural change The next 12 months will be pivotal THE PERSONAL INJURY CLAIMS MARKET The personal injury sector has had a turbulent 15 months The post-LASPO landscape is emerging Claims numbers are falling following a surge in the build-up to LASPO Claims numbers have yet to drop significantly below pre-LASPO levels LASPO created a shift in personal injury claims that has yet to fully play out The focus of claimant representatives away from motor led to sharp increases in EL and clinical negligence claims Return to growth for motor claims in 2015-16, while EL and PL claims fall LASPO has had a mixed impact on the market The banning of referral fees is felt to have had little impact Civil justice reforms have reduced costs The impact of cost reduction on the ability of claimant representatives to take forward EL and PL claims is unclear Proposed government reforms would have a game-changing impact on the sector Proposals would increase the small claims track limit and remove general damages for minor soft tissue injuries Key questions and uncertainty remain about the coverage of incoming reform Political issues and the contentious nature of the reforms add to the uncertainty Stark differences of opinion exist, although reforms are likely to be watered down The reforms will reportedly save motor insurers an estimated £1bn a year Announced reforms could have a wide-ranging impact The reforms may have unintended consequences Restructure of market participants: CMCs are likely to capture a greater share of the market Claims inflation could be an unintended consequence of the reforms Access to justice could fall to contentious levels The market may see a spike in claims numbers following any reforms Changes may push increased claims in other areas Raising the small claims track limit: "old wine in new bottles" vs. market-changing impact Removing general damages: the real game-changer The CMC sector is facing further radical structural change There was a sharp decline in CMCs post-LASPO Before the end of 2015 the market was showing signs of stabilizing Uncertainties surrounding the Autumn Budget reforms and future regulation have thrown the sector back into turmoil The future for CMCs: contraction, diversification, and more regulation Consolidation and diversification will increase Revenue diversification will be key to survival CMCs need to prepare for transfer of regulation to the FCA Current regulatory priorities could have a more immediate impact on the sector Tackling nuisance calls and unsolicited marketing would have a huge impact on the number of leads Monitoring referral fee ban compliance will be complemented with the SRA's review Tackling unauthorized activity, which may increase due to regulatory changes Personal injury solicitors must prepare for tighter costs and a shifting landscape Consolidation and contraction will result from the need for scale and efficiency Fixed fees have led to a significant contraction in income The need for scale and efficiency will segment the market Slater and Gordon and Parabis provide insight into the issues of cost reduction and the likely future structure of the market Significant restructuring is anticipated The future of insurance company ABSs has been called into question The SRA is likely to take more robust action and be handed greater fining powers Fixed recoverable costs are likely to expand The government expects urgent action on the Insurance Fraud Taskforce's recommendations The Insurance Fraud Taskforce's final report was published in January 2016 The government accepts all the recommendations of the report and expects urgent action The announcement of planned reforms overshadowed some of the work of the taskforce Future claims trends: clinical negligence remains an area of concern Clinical negligence claims have increased substantially since LASPO Clinical negligence claims are estimated to have cost the NHS £1.4bn Claims are expected to continue to rise, although the fixed fee regime may deter non-specialists No other areas have yet risen to become the next NIHL or clinical negligence PERSONAL INJURY CLAIMS: MOTOR INSURANCE Motor personal injury claims have increased as the market has adjusted to LASPO Motor personal injury claims rose for the first time in four years There are signs the market has adjusted and stabilized Claims settled still remain significantly above pre-LASPO levels RTA casualties continue to fall, remaining at odds with claims numbers Whiplash and fraudulent claims remain thorny issues for motor insurers, continuing to drive claims numbers Whiplash claims account for up to 70% of motor personal injury claims numbers Fraud remains a significant problem Claims inflation has a greater impact on larger claims, but legal changes and reforms will drive increases at the smaller end Claims inflation is rising at 11% a year for larger claims Claims inflation for lower-value RTAs is more stable Factors affecting future claims inflation MedCo has had a bumpy start and faces a potentially uncertain future MedCo was set up in April 2015 to improve medico-legal reporting for whiplash claims The early review of MedCo sought to tackle the issue of MROs gaming the system MedCo's future will depend on the government's proposed personal injury reforms Proposed government reforms would affect motor insurance profitability Any policy shift on general damages or small claims track would have a significant impact The increase in the small claims track limit could affect 70-80% of motor personal injury claims Legal costs could be reduced by up to 50% Reforms could save up to 20% of personal injury claims costs Savings of £40-50 a year are impossible without the removal of general damages While reforms may lead to significant cost savings, they cannot be viewed in isolation Premium rates have already returned to pre-LASPO levels A surge in claims numbers in the build-up to any reforms could lead to levels higher than the pre-LASPO peak Claims costs are likely to increase in other areas as a result of the reforms The next 12 months will be a pivotal time for motor insurers In the longer-term personal injury will be affected by vehicle technology, telematics, and driverless cars PERSONAL INJURY CLAIMS: EMPLOYERS' LIABILITY EL claims are finally decreasing Disease claims continue to distort the picture, but claims have fallen in both sectors of EL Although disease claims recorded are falling, NIHL continues to take its toll Disease claims recorded peaked in 2013-14, driven by NIHL The NIHL cash cow could be put out to pasture Asbestosis and mesothelioma cases are largely stable and have not impacted claims numbers NIHL continues to take its toll; claims settled are still sharply rising and recorded claims remain significantly above pre-LASPO levels Accident claims are the only area to have fallen below pre-LASPO levels Accident claims have dropped significantly since 2011-12 Injuries to employees, the underlying driver of EL accident claims, are in long-term decline The Claims Portal is having limited success, particularly for disease claims, leading to calls for reform Only 20% of disease claims are estimated to meet portal criteria 4% of disease claims and 12% of accident claims notified have been settled within the portal Costs for the Diffuse Mesothelioma Payment Scheme will be impacted by claims inflation, not frequency The scheme is expected to cost 28% more to run in 2015-16 While the value of awards is increasing, applications to the scheme appear to be flattening Future issues for EL The Mesothelioma (Amendment) Bill could place a further levy on EL insurers Psychological and chronic back pain claims are yet to have any real impact Wherever government reform lines are drawn, a seismic impact will be felt in EL APPENDIX Abbreviations and acronyms Definitions Claims Portal DBAs LASPO MedCo Bibliography Further reading About Verdict Financial Disclaimer

Table 1: Number of personal injury claims recorded and settled, by type, 2010-16 Table 2: Number and turnover of authorized personal injury CMCs, 2010-15 Table 3: Number of motor personal injury claims recorded and settled, 2010-16 Table 4: RTA casualties and motor traffic in Great Britain, 2005-14 Table 5: ABI average quarterly motor insurance premium, Q1 2012-Q1 2016 Table 6: Number of EL claims recorded, split by accident and disease, 2010-16 Table 7: Number of EL claims recorded and settled, 2010-16 Table 8: Number of EL claims recorded and settled, split by accident and disease, 2012-16 Table 9: Employer-reported fatal and non-fatal injuries to employees, 2010-15 Figure 1: Important events in the personal injury market since 2015 Figure 2: Claims settled remain significantly above pre-LASPO levels Figure 3: Motor claims maintain the lion's share of total cases Figure 4: LASPO created a surge in non-motor claims Figure 5: The potential impact of government reforms Figure 6: While the number of personal injury CMCs has continued to fall, turnover increased in 2014-15 Figure 7: Current and future state of the CMC sector Figure 8: Current priorities of the CMR Figure 9: Clinical negligence claims have increased substantially since LASPO Figure 10: A more stable LASPO landscape is emerging in motor personal injury, although claims settled remain significantly above pre-LASPO levels Figure 11: Motor personal injury claims remain at odds with trends in RTA casualty data Figure 12: Reforms would affect a significant proportion of motor claims Figure 13: Claims costing up to £13,000 add £47 to the cost of an average policy Figure 14: Premium rates have returned to levels seen pre-LASPO implementation Figure 15: The rise and fall of disease claims recorded has dominated the EL sector Figure 16: While EL disease claims recorded fell in 2015-16, claims settled continue to rise sharply Figure 17: EL accident claims are significantly below pre-LASPO levels Figure 18: Injuries to employees are in long-term decline

Slater and Gordon Parabis AA LV= Admiral Direct Line Group Allianz RSA