Referral fees are back in the spotlight, and insurers who continue to accept them risk more than their reputation
The industry knows all too well about referral fees and the impact they have on the motor insurance market. The fees, however money-spinning to insurers they may be, have encouraged an increase in personal injury claims – the major contributor to the rise in motor insurance premiums.
Referral fees received a stay of execution last month after the Legal Services Board, which regulates lawyers, decided not to introduce a ban on referral fees, a decision that was outlined in the government’s new Justice Bill last week. It came despite recommendations in the Jackson Review that they should be outlawed.
Under scrutiny
But today, former justice secretary Jack Straw joined the list of so-called ‘referral haters’ calling for a ban, and at the same time exposed the system in great detail. The attention placed on referral fees is greater than ever before, with the national media highlighting what has been described as the industry's “dirty secret”.
The pressure on the government and insurers is mounting and Straw’s outburst will be welcomed across the industry. The ABI and a number of insurers have long been campaigning against the use of referral fees and will be encouraged that the issue is now in the political spotlight.
At what cost?
But the industry’s reputation is once again at stake. For as long as insurers continue to pass on the details of crash victims to claims management firms and personal injury lawyers, these claims will continue to swell and motor premiums will keep on rising. It’s a vicious circle.
How long can insurers go on pocketing these lucrative payments? The cost of motor insurance is high on the list of the Transport Select Committee and this could be just the wake-up call that was needed. But there are also wider issues to take into account, such as how personal data is being used in these cases, the whiplash system and the actions of claims management firms. This one will run and run.
With great power …
Say hello to the FCA. That’s the Financial Conduct Authority, in case you didn’t already know. Brokers will certainly know all about it shortly. The new regulatory body is replacing the FSA from next year and today set out its proposals for regulation of financial conduct.
As the broker’s key regulator, all eyes will be focused on how it will differ from its Canary Wharf-based predecessor. The FCA has already said it will be “tougher and bolder” when using its new powers of intervention and enforcement. Brokers will be hoping this can bring benefits, such as avoiding another PPI-style mis-selling disaster – one of the reasons behind the massive hikes in FSCS levies.
Danny Walkinshaw is digital news editor.
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