Network operators agree to bar access to firms that leave unsolicited messages
The government has agreed with mobile phone network operators to clamp down on claims firms that send out nuisance text messages and phone calls.
Giving evidence at a special session of the House of Commons’ Transport Select Committee inquiry into motor insurance on Tuesday, justice minister Jonathan Djanogly said that the operators had agreed to co-operate on efforts to bar access to firms found to be responsible for the unsolicited calls and messages.
“We are working with the Direct Marketing Association to crack down on the use of texts in this way. We have reached agreement with a number of network operators who have agreed to help with investigations,” he said, adding that the Information Commissioner had powers to issue “strong fines” to companies.
Djanogly also told the committee that the government was “veering away” from making the payment and receipt of referral fees a criminal offence.
He said it would be “very difficult” to prosecute a ban on the controversial practice through the criminal courts, which he believed would be better enforced via regulators as a civil offence.
Earlier, giving evidence to the committee, former justice secretary Jack Straw had branded referral fees as “bribes”.
He said: “These people [claims management companies] are verging on the criminal. In any other line of life, you would call referral fees bribery.”
AXA UK chief executive Paul Evans pledged to the committee that a referral fee ban would cut the cost of motor insurance. He said: “Premiums will fall because this is a very competitive marketplace.”
But he said there was no need for a legislative ban on the referral fees paid by insurers to credit hire companies, which he said could be tackled through bilateral agreements between individual insurers.
Evans also told the committee that AXA had “no intention” of purchasing a personal injury solicitors firm, following the implementation earlier this week of the new alternative business structure rules.
On the issue of uninsured driving, roads minister Mike Penning told the committee that the government was looking at increasing the number of points that motorists can be docked for driving without insurance.
He said that fines of up to £5,000 - the maximum amount that the courts can award for driving without insurance - were an ineffective deterrent for those individuals who lacked the means to pay them.
Penning said the Department for Transport was working with the courts to target these motorists by increasing points penalties instead. He said: “They hate to lose their cars and being stopped from driving.”
The hearing followed the publication of a survey by the committee, carried out with young driver insurance scheme Young Marmalade, showing that 96% of young drivers feel they are being priced off the road by high motor premiums. The survey also found that 21% of young drivers had considered driving without insurance because of the high cost of premiums.
The hearing also followed news in Insurance Times that Royal Bank of Scotland Insurance (RBSI) had become the latest insurer to reveal its referral fee income.
In a presentation to analysts last week, RBSI revealed that it had pocketed £15m from such fees in the first six months of this year, a sum that equated to 7% of its profit.
RBSI’s dependence on this source of income rivals that of Admiral, which revealed last month that referral fees accounted for 6% of profit.
Other insurers to reveal their referral fee income are Allianz, at 1% of operating profit, and Groupama, which makes just £150,000 or 0.05% of turnover from the fees. Markerstudy made less than £200,000 on schemes with brokers, although the sum was returned to brokers.
Aviva and RSA have declined to reveal their referral fee income.
We say …
● It’s great news that the government has reached an agreement with the phone network operators to clamp down on the nuisance texts and phone calls, which are helping to bleed motor insurers dry.
● By making the payment and receipt of referral fees a civil offence, the ban can be policed by regulators, such as the FSA. This won’t catch everybody, but it will catch all regulated firms, including insurers, brokers, lawyers, and claims management companies.