Ban on injury claim referral fees

8 September 2011 Last updated at 19:00 ET

Despite a fall in road accidents involving personal injury, claims have doubled in the past decade

The government is to ban referral fees in personal injury claims in an attempt to curb the “compensation culture”.

It says the current system in which personal injury details are sold on by insurance companies to lawyers has led to rising insurance costs.

Justice minister Jonathan Djanogly said honest motorists were seeing their premiums hiked as insurers covered the costs of ever more compensation claims.

The Association of British Insurers said the ban must be “watertight”.

Mr Djanogly said: “Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.

‘Whiplash’

“Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system.

“People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life”.

He said banning referral fees would make claimants think harder about whether to sue, and give insurers an incentive to pass the savings on to customers.

There is no current timescale for implementing a ban.

The government wants to stop losing defendants having to pay a “success fee” to reimburse the claimant’s lawyer for unconnected cases he may have lost.

It says the proposals before Parliament mean people making the claim will have to pay the success fee – which will be capped – rather than the defendant.

Legal costs overall will fall which means lower costs to pass on to customers, it adds.

The Association of British Insurers – which speaks on behalf of leading insurers – said it welcomed the announcement.

‘Spurious claims’

Director General Otto Thoresen said: “We are very pleased that the government has listened to the insurance industry’s campaign for a ban on referral fees.

“They add no value and encourage spurious and exaggerated personal injury claims.

“It is important that the ban must be watertight and apply across the board.

“Banning referral fees is an important first step in tackling our dysfunctional compensation system, and needs to be accompanied by a reduction in legal costs and action to tackle whiplash if honest customers are to benefit from these reforms.”

Meanwhile, the Office of Fair Trading said it was putting motor insurance under the spotlight after drivers had seen premiums rise by 40% on average in a year.

The watchdog said it would examine whether any competition or consumer issues needed to be addressed.

In 2009, the number of road accidents involving personal injury was 31% down on the average for 1994-98.

But the cost of personal injury claims has doubled from £7bn to £14bn in the past decade and motor insurance premiums have risen at least 30% in the last year.

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