Media storm ensues following Jack Straw’s declaration that referral fees are a ‘racket’

The pressure for a curb on referral fees mounted this week following Jack Straw’s call for the practice to be banned.

The former justice secretary called for referral fees to be outlawed as part of the government’s legislation to reform ‘no win, no fee’ agreements, which were debated in parliament on Tuesday. He labelled referral fees a “racket”, the existence of which was fuelling the increasing cost of motor insurance.

Straw singled out insurance companies for criticism on the issue, arguing that they were contributing to the problem by accepting referral fees from solicitors. He said: “They should and could have said this is outrageous.”

Straw also said that people who suffered whiplash in accidents should be required to prove that they have been seriously injured.

AXA moved swiftly to respond to Straw’s comments by becoming the first major insurer to announce that it would no longer accept referral fees from personal injury lawyers.

AXA personal lines chief executive Steve Hardy said: “We’ve been doing a lot of work on personal injury reform – there was a feeling that the government was falling short on referral fees. We have decided to make a stand, to spur the government into action.”

AXA commercial director of claims and underwriting David Williams said that the insurance industry should have acted sooner to curb referral fees. “We have only got ourselves to blame. We clearly knew it was a PR disaster in the making, but as an industry we have continued to feed from that trough.”

However, he expressed scepticism over whether other major insurers would follow AXA’s lead by volunteering not to take referral income.

Justice minister Jonathan Djanogly said there were “serious problems” with the operation of referral fees. But he resisted calls for their ban, arguing that companies seeking to capture claims would find another route to secure prospective cases.

Sabre Insurance chairman Keith Morris, who chairs the ABI’s motor committee, said that while Straw’s comments would damage the insurance industry’s reputation, they were nevertheless welcome in the long term.

“It is throwing a light on this issue and, if it ends up with a ban on referral fees, it would be a good thing,” he said.

RBSI director of motor underwriting Andy Goldby said that while his company accepted referral fees, it supported their abolition. “Insurers are not the primary benefactors from referral fees. A whole number of industries are involved, and some have their entire business models based on receiving referral fees.

“The banning of these fees would stop the continuous harassment of consumers. If referral fees are not banned, then tighter regulation around those who sell on such data should be implemented.”

In a response to Straw’s comments, Biba did not join calls for a ban on referral fees, instead urging brokers to endeavour to work with “ethical claims management companies”.

Talking points

? The widespread discussion sparked by Jack Straw’s comments means that the referral fees debate has gained much wider coverage. Will this increase pressure on the government to introduce a ban?

? Now that AXA has become the most high-profile insurer to refuse referral fees – and given the extent to which their acceptance is tarnishing the industry’s reputation – which will be the first insurer to follow suit?

Market views

Careful regulation

“This issue will only be eradicated if there is a market-wide solution, and I believe this is most likely to come via regulation. This law needs to be drawn broadly enough to prevent current payers of referral fees adjusting their business models to achieve the same effect via a different mechanism.” Andrew Torrance, Allianz Insurance chief executive

Jackson in full

“If people can understand the severity of the issue overall then there is some possibility, if not probability, that the right actions will be taken. The decision should be: let’s implement Jackson as a complete package.” Barry Smith, Ageas chief executive

A good move

“A ban on referral fees has been swept under the carpet [by government]. I am really pleased Jack Straw has returned it to the top of the agenda.” Laurent Matras, Groupama managing director