Referral fees for personal injury cases will be subject to an outright ban, the Ministry of Justice said today.
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.”