Is it the end of the road for motor referral fees?

Referral fees – payments made to individuals or businesses for successfully referring a client or customer to another business or service provider – were famously dubbed “a huge racket” and the car insurance industry’s “dirty little secret” by former justice secretary Jack Straw back in 2011.

But, 14 years on, a veil of secrecy still surrounds referral fees in the motor market, with car insurers – and even the ABI – reluctant to discuss them.

Referral fees were thrust back into the spotlight by the FCA in July 2025, when it commented that these can inflate the price of car insurance premiums and extend the time taken to settle claims.

The FCA added that most insurers believe claims management companies (CMCs) and accident management companies (AMCs) introduce greater complexity and cost to the claims process.

The FCA said: “Claims costs have increased where additional parties are involved in the claims process and claims processes are not managed by insurers.

“This contributes to the increase in claims costs associated with accidental damage and property damage. This includes where insurers outsource elements of claims handling to AMCs, CMCs and credit repair and hire organisations – and receive referral fees for doing so.

“The involvement of other parties can add complexity to the process and increase costs, resulting in delays and higher premiums for customers.”

Insurers of non-fault drivers often earn referral fees by passing their customers on to credit hire firms – even when these drivers already have courtesy car cover within their policy, the FCA found.

The regulator noted that: “The prevailing view of insurers, supported by much of the data provided, is that CMCs and AMCs introduce greater complexity and cost, making efficient claims management and cost control more challenging.”

However, some insurers the FCA spoke to said that CMCs can help reduce operational costs and improve customer outcomes.

Unsurprisingly, these insurers also mentioned referral fees as a benefit they enjoyed from CMCs.

Other insurers fed back to the regulator that CMCs and AMCs have raised claims costs through prolonged resolutions, high fees, increased litigation costs and higher fraud risks.

Insurers receive between £30 and £1,000 as a typical referral fee. The regulator said: “These fees and compensation ultimately increase claims costs, driving higher motor insurance premiums.”

Learning from Laspo

The principle of referral fees bumping up premiums will be familiar to anyone working in the car insurance market around 2011, when it was the turn of bodily injury referral fees to be in the spotlight.

It was back in 2011 that Straw made his infamous “dirty little secret” comment about bodily injury referral fees. These were eventually outlawed by the Legal Aid, Sentencing and Punishment of Offenders Act 2012, better known as Laspo.

At the time, banning referral fees for bodily injury was welcomed by the ABI and high profile insurers, such as Aviva, Axa UK and Zurich. The insurance trade body actively pushed for an end to what it dubbed “compensation culture” and inflated referral fees that increased car insurance premiums.

Aviva and Axa UK, meanwhile, called for the referral fee ban to include credit hire and repair services, while the Competition Commission – the first iteration of the Competition and Markets Authority – recommended that referral fees for credit hire and repair be scrapped in December 2013.

Despite this mounting pressure, motor insurance referral fees outside of bodily injury managed to escape the government’s axe and Laspo’s noose.

Fast forward to this year and the FCA now recommends that the ABI and insurance companies work to reduce referrals and instead take more claims in-house, to cut the time and costs associated with claims.

The regulator also wants to see incentives slashed for policyholders to use AMCs and CMCs in the first place and for “unreasonable” third party costs to be challenged.

Market-wide silence

To find out what the insurance industry wants to see happen around referral fees, Insurance Times approached the nine largest motor insurers, as well as the ABI, the Credit Hire Organisation, FMG, WNS Assistance and Davies Group, plus third party consultants such as KPMG.

Only one organisation – law firm Keoghs – would comment publicly on this subject matter, suggesting an unparalleled level of sensitivity.

Gary Herring, partner and head of credit hire at Keoghs, said: “The discussion around referral fees in motor insurance is complex, reflecting both their long-standing role in the market and the wider challenge of claims inflation.

“While these arrangements form a legitimate part of the claims ecosystem, our primary focus and the shared goal across the industry must be on delivering fair and efficient outcomes for policyholders.

“In our view, the more pertinent issue is the escalating costs driven by excessive and unreasonable credit hire claims – particularly those impacted by sharp practice [that] has pervaded certain sections of the market and which inflate premiums for all motorists.

“Targeted reform in this area – focusing on transparency, accountability and eradicating practices that drive up costs without consumer benefit – is crucial. This is where the industry should align to deliver tangible savings and improve trust.”

Speaking off the record, an executive from one major insurer told Insurance Times that the firm was supportive of the ABI’s work around fee removal and tighter regulation of credit hire companies – but the individual would not say more.

Another anonymous insurer representative said that extending the current ban on bodily injury referral fees was possible, but not when some parts of the claims system are unregulated, such as garages and storage firms.

A pivotal crossroads?

In November 2024, the ABI confirmed reforms to its voluntary General Terms of Agreement (GTA), which manages the relationship between insurers and credit hire firms.

The changes include better oversight of credit hire rates – hopefully leading to lower claims inflation – a mandatory arbitration system for disputes and revised penalties, again aimed at taking unnecessary costs out of the system.

The future of referral fees in motor insurance remains murky, but with the FCA now publicly challenging the role of referral fees in inflating costs and dragging out claims, the motor insurance market appears to be approaching a pivotal moment.

The question is no longer whether the referral fee system adds unnecessary complexity and cost – it is what are insurers prepared to do to reform that system and how prescriptive might the regulator and government be?

The veil of secrecy may be about to drop.