Abolition of referral fees welcomed

Norwich Union (NU) claimed that it welcomed a government commitment to review the existence of referral fees, despite sources maintaining that the company makes millions from the practice.

Speaking at the Law Society conference, the Secretary of State for Constitutional Affairs, Lord Falconer, said: "I want to get rid of referral fees."

The controversial fees are a major stream of income for composite insurers, which buy and sell personal injury claims to and from law firms. It is understood that claims can be sold for as much as £700 per case.

Lawyers argue that personal injury claims costs are driven up because insurers cash in on claims, so pushing up legal expenses, which are passed on to the claimant.

However, NU said it would welcome a more transparent personal injury system, operating without referral fees.

Dominic Clayden, NU technical claims director, said: "We would welcome referral fees being done away with. It would result in lower costs in the system, that is a cost born out of the policyholder's pocket. The issue is one of transparency, and we would welcome the opportunity to be transparent through taking referral fees out of the process."

A Zurich insider said the company would also abolish referral fees if a more appropriate personal injury system were to be established.

Fraser Whitehead, senior litigation partner for law firm Russell Jones & Walker, is backing the proposed abolition. He said: "Abolition of referral fees would support the ABI campaign to reduce legal fees, because that is the biggest cost [in the current system]. As well as looking at referral fees we need to look at medical fees. Transparency needs to be fully formed.

"I think this will come in sooner rather than later."