Barely a month has gone by without another development in the referral fees story that has rocked the industry – but what can we expect from 2012?
2011 saw a continuation of what started in 2009 following the outcome of the MoJ consultation into the injury claims process – the rapid (if somewhat disorganised) introduction of the MoJ portal and the new fast-track solicitors’ fee scale. This change process looks set to continue into 2012 and beyond, with the prospect of a dramatic reduction in solicitors’ fast-track fees and proposed legislation to ban or heavily reduce referral fees.
Alarm bells over dropping profits and rising rates
The year began with the January publication of Datamonitor research that found 2010 saw a return to growth for personal general insurance, but predictions were made that private motor insurers would need to raise rates by 30% to make a profit. Most insurers privately took the view that it would be a long time before insurers ever saw a profit in this sector. Cynics cried foul-play over ‘hidden’ insurer profits from referral fees.
Reform of injury claims championed
The Ministry of Justice in March gave its backing to Lord Jackson’s host of recommendations for reform of injury claims and no-win, no-fee arrangements. This included the removal of success fee recoverability from insurers, the introduction of the rather nattily phrased ‘one-way cost-shifting’ and a reduced need for ATE insurance. Claimants were to get an increase in damages of 10% to compensate them for paying towards their own costs. Referral fees, however, slipped off the agenda and the Transport Select Committee suggested that insurers and others who receive them should be more transparent about it. The industry wondered if this heralded the end of the referral fee debate.
Jack Straw ignites referral fee fury in the media
In May, Jack Straw MP arrived on the scene after hearing from a local constituent incensed about rising motor premiums and blaming it on referral fees. This time the issue had reached the consumer and a popular media-rising saw the entire industry demonised, including solicitors, insurers, claims management companies and anybody else seen as part of the newly coined ‘money-go-round’. Jack Straw pledged to table a private member’s Ten-Minute Rule Bill to amend the legislation previously introduced by the MoJ.
Industry prepares for fall-out
In the wake of Jack Straw’s announcement, the following months saw a variety of industry responses. In June AXA announced an immediate ban on the acceptance of referral fees in injury claims and called for whiplash damages reform, while a number of (particularly direct) insurers took a robust position over referral fee revenues, arguing instead that they subsidised motor premiums.
In July, the ABI reported a significant year-on-year rise in motor claims fraud, while a number of insurers prepared the financial markets for news that the rise in bodily injury claims was hitting profits.
Justice secretary announces ban on referral fees
The referral fee debate appeared to reach its climax in September with justice secretary Ken Clarke announcing days before the hearing of Jack Straw’s Ten-Minute Bill that the coalition government would ban referral fees. The prospect also loomed for making the payment or receipt of them a criminal offence.
Industry questions: Is the ban enough?
The ABI and others called for a reduction in solicitors costs to reflect any reduction in referral fees, citing claims cost to UK consumers running at £2.7m a day, and the OFT announced an investigation into credit hire and other arrangements in motor claims.
Amid murmurings that the ban would not go far enough, the Transport Select Committee reopened its investigation into rising motor insurance costs, and the FSA proposed a change in the rules on compensation awards. The House of Lords debated the referral fee issue and the Legal Services Act came into force, bringing the prospect of insurers, claims companies, investors and others taking shares in solicitors’ alternative business structures (ABSs) one step closer.
November saw the proposal to criminalise referral fees rejected by the government and the Claims Standards Council threaten the government with judicial review over the proposed reforms, claiming they would deny claimants’ access to justice. Most recently, it has been announced that a coalition of insurers and lawyers is to lobby the House of Lords for tougher measures on banning referral fees.
2012 and beyond
What the market and the public need to know is how and when the referral fee and other debates will end.
Some argue that the proposed reforms do not go far enough and question whether solicitors are needed for the vast majority of claims that are small and undisputed, and that there are other more cost-effective ways of compensating legitimate injury claimants.
Maybe these are questions that will come to the fore in 2012 along with a second reading in the house in January of the proposed legislation on claims reform and the Transport Select Committee and OFT’s inquiries into motor claims. These issues need to be resolved as soon as possible so that public concerns can be allayed and those legitimately involved in the serious matter of providing insurance and the necessary services when accidents occur can start to plan for a more efficient, rationalised and stable business environment.
Peter Ashdown-Barr is chief executive of InterResolve