AXA’s referral fee stance good for UK – Moody’s

AXA’s decision last week to shun referral fees is positive for the UK insurance industry as a whole, says rating agency Moody’s.

Moody’s contends that AXA’s stance will increase pressure on other UK non-life insurers to follow suit.

Referral fees are widely believed to exacerbate the claims farming problem because they reward companies, including insurers, for passing on accident details to lawyers.

Moody’s said that the amount insurers pay out as a result of claims farming more than outweighs any income they generate from referral fees, and so any reduction in claims farming by turning down referral fees is ‘credit positive’ for the sector as a whole.

The agency added that AXA’s announcement builds on the legal reforms announced last year in the Jackson Review and the increasing political awareness of claims farming and its impact on insurance pricing.

AXA could be disadvantaged if other insurers do not follow its lead, Moody’s said, because its competitors would still be able to access a revenue stream that AXA had denied itself. However the agency added that the level of referral fees to gross written premiums is typically modest and the disadvantage would therefore be small.