Legal Services Board claims referral fees can be managed with ‘transparency’
Insurers have lambasted the Legal Services Board’s (LSB) decision not to impose a blanket ban on referral fees and are now look to Westminster to end the controversial practice.
The LSB recommends customers know when referral fees are operating, but rules out an outright ban.
Justifying its stance, board chairman David Edmonds said: “Before this exercise, the debate on referral fees was characterised by high passions but a lack of hard evidence. Following this detailed investigation, we are persuaded that the interests of consumers are best served by continuing to permit referral fees, but managing their impact through shining the light of transparency on them.”
But Groupama chief executive François-Xavier Boisseau hit back: “This decision is really very disappointing and perhaps illustrates the lobbying power of those supporting the continuance of referral fees.
“This is not really about allowing access to justice but more about continuing a business model that produces substantial revenues for the legal profession and others who benefit, at the expense of those who pay the insurance premiums.”
“We are very surprised by the reference to ‘a lack of hard evidence’ in the statement from the Legal Services Board. Last year the UK motor insurance market burned over a billion pounds of capital and frankly, if the industry is going to have to continue to face large numbers of claims at ever-increasing cost, then insurance premiums are going to have to continue to rise substantially.”
A spokesman for Aviva said: “Aviva continues to be supportive of a greater degree of proportionality in legal costs and strongly believes that referral fees are to a large degree responsible for excessive legal costs which exist in the personal injury market at present. There is a need to reduce fixed costs and hourly rates to ensure that the significant reduction in legal costs, which the MOJ is looking to deliver, is in fact achieved.”
ABI director of general insurance and health Nick Starling said: “Making referral fees more transparent, as the report recommends, will not stem the growth in the compensation culture or frivolous and exaggerated claims which the practice encourages. This is why they should be banned.”
Justice minister Jonathan Djanogly has said that the board’s decision will ‘inform’ the government’s next steps on whether to ban referral fees.
Pass notes: Referral fees
So what are these referral fees?
Lawyers pay these fees so they can get their hands on personal injury cases. They pay them to accident management companies, brokers and even insurers.
But why are insurers tipping off the lawyers?
Insurers do generally oppose them as they are the driving force behind the surge in number of claims and the cost of claims over the last five years. The problem insurers have is that they can refuse to refer claims against their competitors, but that's not going to stop rivals referring
back against them. In the end, most insurers make money from referrals to claw back what they can from the horrible mess.
There's little insurers can do apart from sweat it out and hope that the rate rises they're pushing through will be enough to beat the escalating claims costs.