General Insurance Article - Millions confused by legal expenses insurance

 A new report from Consumer Focus, ‘In Case of Emergency', reveals that Before the Event Legal Expenses Insurance (BTE LEI) could play a bigger role in widening access to justice, but the current design and promotion of these products leaves them a long way short of the mark.

 Forty-three percent of people surveyed by the watchdog said they knew little or nothing about legal expenses insurance - this is despite the fact that an estimated 25 million UK households currently have this type of cover. Around six in 10 consumers already pay for this insurance in some form and the UK legal expenses insurance market is worth some £447 million.¹

 Two recent major legal reports recommended legal expenses insurance as a way of reaching people, even those on middle incomes or above, who would not otherwise have access to justice.² Consumer Focus argues that in order to play such a role, BTE LEI would need to be more clearly explained, more consistent in what it offers, better promoted and give customers more choice over their legal representation. The watchdog is warning that even a better performing legal insurance market could not fully fill the gap that reform of ‘no-win, no fee' arrangements and legal aid cuts of £350 million a year in England and Wales will leave.³

 To improve the legal expenses insurance market Consumer Focus wants to see:

 
•   improved consumer information and clearer marketing, such as comparison tables and key facts documents, to make it easier to understand policies and shop around;
 
•   a consumer information and knowledge campaign to highlight the potential benefits of legal insurance;
 
•   an independent appeals system so consumers can challenge if their claim is rejected;
 
•   freedom of choice so consumers can choose their own solicitors if they make a claim;
 
•   a review by regulators of the impacts of referral fees and bundled bank account packages on the market and whether non-bundled policies, which offer more clarity and visibility, albeit at a higher cost, may increase the use and value of legal insurance.

 Legal Expenses Insurance typically costs between £13 and £24 a year and is commonly bought as part of a bundled insurance product, like motor or home insurance. It usually entitles the buyer to free legal advice and representation related to their civil dispute. 

 Lola Bello, legal services expert at Consumer Focus said:

 ‘Worryingly for a product that millions of us have, there seems to be widespread confusion over what customers are actually paying for. If these insurance products are to play a more important role in providing affordable access to justice they must be truly fit for purpose.

 ‘Eligibility for legal aid is dwindling and this has resulted in a lot of noise about legal expenses insurance stepping into the breach. Our research shows legal fees insurance could help some consumers but it cannot plug the gap that any legal aid cuts will leave behind.'

 The watchdog's report includes consumer research and an analysis of BTE LEI insurance products, including their terms and conditions and how they are sold.⁴ It shows that over half of people who had a successful insurance claim thought that legal insurance was the only way they could have sorted out their legal problem.⁵ However, the ‘In Case of Emergency' report also raised clear problems with the design and promotion of these products:

 
•   Legal expenses insurance does not provide comprehensive cover. It will not cover many legal issues such as family disputes or mental health issues, for instance. It is also geared toward higher income consumers - it is not easily accessible to, or purchased by, people with lower incomes.
 
•   Customers are confused by legal expenses insurance with 43 per cent saying they knew little or nothing about it. Seventy per cent were unsure if they would change or improve anything about their legal insurancepolicy - suggesting they weren't sure about what it actually covered.
 
•   Consumers are not able to choose their own solicitor - they must use one supplied by the insurer. In-house lawyers often do the initial assessment of the case raising issues over whether the insurer is working for the claimant or the insurer. This clearly raises issues of impartiality, as do ‘referral fees' law firms pay insurance companies in order to be a preferred firm for its business.
 
•   It is difficult for consumers to compare products and shop around for the best deal because legal expenses insurance is usually bought as an add-on to motor or home insurance. Different insurers cover different types of dispute with varying claim levels and coverage, and key information is often buried in the small print.
 
•   Customer dissatisfaction - Consumers who had made a claim reported a number of complaints including lengthy claim times (37 per cent said their claim took a long time.) A third reported their claim was refused with no explanation.
 
•   Consumers could unwittingly end up paying twice for coverage - some aspects of a legal insurance policy may already be covered by a packaged bank account, trade union membership or other insurance policies such as fully comprehensive motor insurance.