Soft market driven by opportunists would be a ‘disaster’
Is anyone not cashing in on referral fees? News that the Labour Party made £350,000 from personal injury (PI) referrals follows RBSI’s admitted £15m profit and Admiral’s 5.6% of profit before tax earned from the practice during the first half of this year.
AXA has taken a lead by banning referral fees from its business. Commenting on motor rates, AXA personal lines intermediary and partnerships managing director Mike Keating said the spiralling cost of PI claims undermined the market.
“There has been a continuous increase in rates over the past 18 months to two years to combat personal injury claims inflation,” he said. “The rate of increase has slowed in the last couple of months; however, the market is in no way at a healthy point and it would be suicide to put through a decrease.”
If opportunistic firms chose to cut rates to win market share, it could be the “catalyst for an emerging soft market that would be a disaster”, Keating added.
“There have been tactical anchor rate increases across the portfolio, but I don’t think two years is enough. I predict we need another 12 to 18 months of increases.”
The Ministry of Justice’s ban on referral fees paid by PI lawyers is seen as a positive move. But Zurich head of claims Tony Emms cautions that the Legal Services Act, brought into force on 6 October, introduced a loophole that weakens the ban’s effect: non-lawyers can now invest in and own legal practices, meaning other businesses owning a PI firm could pay the fee instead.
He said the Act needed to say that “it is now illegal to receive a referral fee or benefit in kind”, from any offset. Another welcome move would be to cut the £1,200 fixed fee paid to lawyers in PI cases, thought to be helping to fuel referrals.