‘Insurers are not the villains of the piece, but they have been sucked into a disreputable system’

It’s the end of an exhausting week for Jack Straw when he talks with Insurance Times. As well as finding himself at the centre of a media storm provoked by his call on Monday last week for a referral fee ban, he’s also had to find time to visit his mother, who is ill in hospital.

We catch up with the ex-justice secretary as he escapes to his weekend retreat in rural Oxfordshire.

First things first: why didn’t he tackle the problem when he was in charge of the justice system?

Straw replies: “I was pretty well informed about the issue of referral fees, which was one of the main reasons I was interested in endorsing the establishment of the Jackson Review in the first place and endorsed it when it was published.”

But he says that, while he was conscious of disquiet surrounding referral fees, he was not fully aware of the seamier side to the controversial practice, adding that day-to-day responsibility for civil litigation issues were handled by ministerial underlings.

“It’s interesting that it didn’t feature on my radar,” he says. “I don’t remember any questions about it in parliament. Had this been brought to my attention, I would have gripped it as a minister.”

The Blackburn MP says he became aware of the true scale of the problem after his election agent Phil Riley was bombarded with unsolicited texts and calls after being involved in a minor road accident.

Some suspect that the last government’s failure to act on the issue stems from the Labour party’s financial reliance on the trade unions, many of which benefit from referral fee income. But Straw insists that, on this issue, there was no special treatment for trade unions.

“Regardless of whether they are trade unions or claims management companies, they have the same responsibilities. I was absolutely clear about that.”

Straw criticises the ABI, saying that, when he was in government, “the ABI were not volunteering that their members were involved in the trading of people’s data”.

He argues that insurers have been sailing close to the wind on data protection. “It’s time for a strict enforcement of data protection principles. If you look at the first principle [of the Data Protection Act], it says that anybody passing on information without the explicit consent of the person is in breach.”

While a ban is the long-term solution, Straw wants the industry to act collectively by refusing to accept referral fees, given that what he terms “back sliders” will have a competitive advantage if they continue to take money from the controversial practice. “The ABI could do a lot more by insisting on that, and on transparency,” he says. “Insurers have not been upfront about what’s going on.”

But what about the ABI’s argument that getting insurers to act in concert by not taking referral fees will leave the industry open to challenges on competition grounds?

“Preposterous,” is Straw’s blunt reply. “It has become conventional wisdom and it’s nonsense. Nobody seriously thinks that the Office of Fair Trading is going to refer insurers to the Competition Commission because they are ensuring that the law is applied.”

He argues that the ABI could easily make the case that insurers were not acting anti-competitively, but that they are co-operating in the public interest to reduce fraud and near fraud. If the ABI has any doubts about its stance, Straw suggests it should clear them up with the OFT.

However, he believes many insurers will be shamed into shunning referral fees. “They now know that the situation is unsustainable and that the game has changed.”

But, in the meantime, the furore has damaged the industry’s reputation. Other politicians, the press and the general public have been unanimous in their reaction.

“People are outraged that claims management companies and others were inviting them to perpetrate claims that were either fraudulent or right at the edge of the law,” Straw says.

But he doesn’t want to single out insurance companies for criticism. “Insurers are not the villains of the piece: all of the insurers I have met are decent and serious people, but they have been sucked into a disreputable system and they need to get out quickly.”

“Not a single claims management company has come forward to justify its position,” he adds, putting the boot into his own profession too. “Some legal firms have pushed their luck and gamed the system. It’s become more than a nice little earner.”

Straw acknowledges that banning referral fees won’t be easy. “The whole history of City fraud shows that whatever regulation is introduced, somebody will challenge it at the margin.”

While Labour’s justice spokesman Andy Slaughter appears to be deviating from the party’s official pro-Jackson stance, Straw remains a firm backer of the review. “Somebody who has been badly injured will find a lawyer under this new system.”

So what’s next? The transport select committee, which earlier this year called for insurers to publish any referral income they receive, has decided to reopen its inquiry into the cost of motor insurance by calling on Straw to give evidence.

And even though they have crossed swords over the part played by insurers in the referral fee “racket”, Straw is working with the ABI to draw up an amendment to the Legal Aid,

Sentencing and Punishment of Offenders Bill, with which the government is implementing the bulk of the Jackson reforms.

Having held two of the so-called great offices of state (foreign and home), Straw is a true grandee of British politics. On this issue, though, he displays the puppyish enthusiasm of a young backbencher on the make.

He is convinced that the status quo is not an option on referral fees. “Every law-abiding person believes that the law needs to be changed.”

Snapshot

Age: 64

Hometown: Loughton, Essex

First job: President of the National Union of Students

Family: Married with one son

Interests: Blackburn Rovers Football Club

In his own words: ‘Had the full extent of referral fees been brought to my attention, I would have gripped it as a minister’

Market view: Straw’s intervention in the referral fees debate has more than ruffled insurance companies’ feathers. But the industry consensus is that the bad headlines will be worth it if Straw succeeds in banning the controversial practice.