Putting the brakes on the referral fee merry go round

Although on the face of it both are unconnected propositions, they have at their heart a number of similarities. The first question is asking you to trade your commodities for cash, the second is asking for you to become a commodity to be traded for cash. Both questions are the products of what the public feel are less than reputable industries and both industries are in desperate need of transparency and reform.

While I wouldn’t profess to know about the inner workings of the gold market, I do know the various maladies which are besetting the personal injury system – particularly with regard to referral fees. In the personal injury system, these represent the sale of accident victim information by insurers and claims management companies to solicitors.

Practices such as these have spawned what I believe to be a system which privileges money over merit. The law firm that pays the most, rather than that which is best equipped to deal with an accident victim’s claim, is the most rewarded. 

The Government has declared that they intend to ban this practice, which in principle I have long advocated and welcome. However, as I told the House of Commons Transport Select Committee this week, this should not be done in isolation so it doesn’t do more harm than good. A commitment to wholesale reform is needed: after all, if you’re a lawyer working in a system which has more in common with trading gold than pursuing justice, something is deeply wrong.

Today, as you read this, a personal injury lawyer somewhere in the country will be signing off a payment which secures drivers’ details from an insurer, a garage or, most probably, a claims management company. En route, data protection laws will most likely have been breached – did you really consent, when you renewed your insurance policy a decade ago, for your mobile phone number to end up on an accident claim marketer’s database? But no matter: the show must go on. And so claim after claim is made, creating a vicious cycle which sees the insurance companies pass on their increased costs by setting higher premiums for all drivers, irrespective of whether they have made a claim.

To put an end to these practices, a holistic approach is needed. The current system is complex, with any number of strands going off in any number of directions, and we must beware of piecemeal solutions. What, for example, is the Government’s definition of a referral fee? How will the advent of Alternative Business Structures (ABSs) influence the personal injury and insurance markets? Could it be, thanks to the ABS regime, that a claims management company or insurer takes over a law firm? Market rumour is indicating that a vast majority of CMCs have expressed interest in doing just that when the time comes. Also, what of data protection, SMS spam and the RTA Portal?

Only through industry-wide recognition – from solicitors, insurers and claims management companies alike – of the need for wholesale reform will the industry begin to better serve the public and recover its reputation.

If, as I fear, an industry-wide consensus on reform does not materialise, the Government will need to take the lead on reform and should be wary of vested interests attributing blame on a specific problem.

A culture of profiteering within the personal injury system has created these corruptions. While they remain unaddressed, accident victims will continue to be treated like “gold” and the public will continue to pay the price.

John Spencer is director of Spencers Solicitors, and vice-chairman of the Motor Accident Solicitors Society