Ellen Bennett, deputy editor.
Referral fees smack of the brown envelope. A hefty sum – sometimes as much as £1,000 – handed over by a hopeful lawyer to a trade union, claims farmer or even an insurer, in the expectation of cashing in on fees, would be called corruption in many countries. Now the solicitors’ regulator has revealed that one in three is failing even to tell their clients that they have paid for their cases. The clients are being packed off to the lawyers who can pay the most, rather than those who offer the best advice. These same lawyers delay and complicate the claims process.
So why isn’t the insurance industry up in arms? Well, inside some claims departments, there are angry directors arguing against a system they estimate adds £50 to every policy in motor alone, and ultimately costs the consumer and keeps the claimant from finding the best advice.
But the industry has a guilty secret. It benefits from the system, with many insurers gratefully, if quietly, accepting their own referral fees. This is nonsense. What they receive with one hand, they pay out with the other. The perpetuation of referral fees encourages scandalous case handling, with lawyers dragging out simple personal injury claims for hundreds of days just to make back the money they have paid out in the first place. Meanwhile, the claimant languishes, the option of rehabilitation fades, the claims costs rise and the policyholders pay.
The government recently caved in to the trade unions, neutering its proposed reforms to the personal injury process to protect their income from referral fees. But if the solicitors’ own regulator is willing to risk the wrath of its community to speak out, the insurance industry should follow suit. It’s time to get off the gravy train.
• Move over networks. While the big players have been publicly scrapping, and endless new propositions have appeared on the market, Norwich Union has been quietly building its own club of 236 independent brokers. Given the insurer’s tough stance on consolidators and commissions for some networks, having the biggest club in the market will bring it peace of mind. It will also strengthen its negotiating position in those talks on rates and commissions. Norwich Union’s rivals will be watching closely.