MoJ bans referral fees outright
Referral fees for personal injury cases will be subject to an outright ban, the Ministry of Justice said today.
Jonathan Djanogly
Justice minister Jonathan Djanogly said the very existence of referral fees had contributed to the creation of a compensation culture and had forced insurance companies to push up motor premiums.
He said: “Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.
“Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life.”
In May the Legal Services Board said it would refrain from banning the controversial fees because it was persuaded that the interests of consumers were best served by continuing to permit their use (27 May 2011).
The Association of British Insurers (ABI), continued to call for an outright ban on referral fees, arguing that their existence negatively impacted premiums.
Lawyers said the move was to be welcomed but questioned how it could be effectively regulated.
Russell Jones & Walker head of personal injury Simon Allen said: “In all matters the devil is in the detail and this announcement gives little away. Whatever the outcome, there are bound to be winners and losers but until more is clarified it’s very difficult to say who they will be.”
Berrymans Lace Mawer head of policy development Alistair Kinley agreed, adding: “We think the Government’s proposed ban will be widely welcomed but the what, how and when of any ban do need to be clarified, as do the knock-on effects on claims behaviour and costs.”
Beachcroft partner Andrew Parker said the move was to be “applauded”.
He said: “Referral fees add no value to the claims process for the consumer and are not a badge of quality service.
“The key to this working though will be for the Government to reduce the costs in injury claims accordingly - if referral fees come out, the costs must need to come down to remain fair.”
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Readers' comments (12)
Anonymous | 9-Sep-2011 12:16 pm
When will people realise that it is not the fee that is the problem, it is the ginormous hourly fees charged by the claimant lawyers that is and there is nothing the government can do about over inflated hourly rates so it picks on this instead. An easy win for the insurance bods
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Anonymous | 9-Sep-2011 1:17 pm
First poster seems to lack understanding of this area. Well in excess of 80% (probably over 90%) of all RTA cases are already subject to a fixed fee regime, so hourly rates simply do not come into it.
Will the insurers be announcing how much they will be reducing premiums by in light of this development?
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Anonymous | 9-Sep-2011 2:12 pm
It would be very nice if that was the case. But from what I saw working in costs, claimant lawyers will do practically anything in their control to avoid the fixed costs regime and insurance companies wont run cases to detailed assessment.
The referal fees aren't necessary but I highly doubt that a ban on them will not affect our insurance premiums.
Would it be possible for firms to take on in-house claim management teams to find 'victims' who so rightly deserve money for a little bump in their car?
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Cameron | 9-Sep-2011 3:28 pm
Does this mean I will stop receiving texts telling me that "......I may be entitled to a lump sum payment for my recent accident"?
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Anonymous | 9-Sep-2011 3:43 pm
It astounds me that the insurance companies are trying to wriggle out of this with little or no culpability.
Up until recently many of them have been selling on claims and making vast profits by charging lawyers referral fees.
Arguably, they are also one of the main contributors to the increase in the number of people making claims. If you have the misfortune of having an accident they are very quick to advise you about the possibility of making a claim and to sell your details on to solicitors.
And yet they still try and suggest that an increase in premium is all down to the lawyers and so called "compensation culture".
It is about time somebody started looking a little more closely to the insurance companies for answers.
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Anonymous | 9-Sep-2011 3:53 pm
What we need to be very clear about is "referral fees" could well emerge as perfectly legitimate fractional share fees ! in any ABS venture.
If you are thinking of selling your defendent PI business, some claims management companies may be more interested following the announcement.
Is the time right to sell up !
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Anonymous | 10-Sep-2011 12:22 pm
I thought it was facinating about the referral fees, it sadly shows a complete lack of understanding on behalf of the government about what to do to reduce PI claims. You can ban referral fees but- it will just mean referral organisations will just invoice each firm they "refer" work but set the invoice up like a marketing fee for the fees they have incurred and the marketing conducted on behalf of each firm- eg TV adverts. Im guessing that the referral firms will set themselves up as some sort of co-operative orgainisation . To me that is quite legitimate-all firms eg solicitors are entitled to budget for marketing, if they pay someone else to do it for them I think that is fair. The only way to kick the PI market up the preverbial is to reduce claimants costs so that "referrals"/ paying for cases/ "marketing fees" for cases at say £500 per case becomes unaffordable i.e at the momment there is enough profit in PI for firm to stomach the referral fee- if you take out success fees and reduce costs then the £500 per case becomes untenible as there is no profit in the work if you take those sorts of margins away. So, as for the current plans- are we are really left with the Status Quo but with a bit of restucturing. Everybody is happy save the insurers. Claimants firms because they can still "buy" in work and Defendant firms becasue case volumes remain high (they need the work as much as anyone- so don't squeal about referral fees as it has directly resulted in you getting more work and making more profit.)
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Gary | 11-Sep-2011 11:54 am
So, why not just ban the Claimants lawyers from being able to recover the costs from the other side??
If you have ever dealt with Claimants lawyers in PI matters on a regular basis like we do, while there are some that are great at looking after their clients, there are others that are diabolical ..... The average Claimant is terrrified of lawyers and just takes what they say right.
Only people to loose here are the small Claimants.
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Anonymous | 13-Sep-2011 10:04 am
Whatever the merits or otherwise of these postings, if those who posted them are solicitors they should be ashamed. There are appalling misspellings in them, of elementary words. The profession uses words as its tools and the least we can do is use them correctly.
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Anonymous | 13-Sep-2011 11:27 am
Its all about the Insurers, they delay settlements so claimants issue costs go up, they pay referral fees, they sell their insureds data, they are the main culprits. The government does not have a clue in this area, if they targeted the Insurers like they should have kept a closer eye on the banks alot of the issues would resolve.
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