Ban on referral fees seeks to curb development of premiums

The government hopes to stem rising insurance costs by banning referral fees in compensation for injuries claim cases.

The fees, highlighted by former Labour MP Jack Straw in June, are paid to claims management companies, garages and insurance providers who provide details of accidents C often auto accidents C to private injury lawyers.

The customers are estimated to become worth 3bn per year, and successful claims are paid typically by coverage. Insurers have covered the charge by passing it up on policyholders by means of higher premiums.

Justice minister Jonathan Djanogly said: “Honest motorists are seeing their premiums hiked up as insurance providers cover the increasing costs more and many more compensation claims. Lots of the claims are spurious and merely happen because the current system allows too many people to profit from minor accidents and incidents.

“Referral fees are one characteristic of the compensation culture problem and an excess amount sloshing with the system.”

Djanogly said citizens were being asked to sue at no risk privately, “leaving schools, business and the wonderful moving into fear of being dragged towards the courts for simply going about daily life”.

He added: “We will ban referral fees and we will go further. We certainly have proposals before parliament to get rid of the bizarre situation where persons have no stake in the legal costs their cases bring. This could cause claimants think harder about whether they should call sue and offer insurers and business generally a motivation to pass the savings upon customers through more affordable prices.”

A spokesman for your Ministry of Justice denied the fact that announcement was at step to a comment via the Office of Fair Trading yesterday that it’s investigate soaring car insurance premiums to know whether drivers are now being overcharged.

The Association of British Insurers (ABI) said a was convinced of keeping costs down for consumers, but reform with the compensation system was necessary if premiums were to drop.

Director general Otto Thoresen said: “Rising claims costs from accidental injury claims, excessive legal costs, insurance fraud and uninsured driving, coupled with lower investment returns in recent years, have unfortunately concluded in rising car insurance policy bills for many people customers.

“In fact, the car insurance policy sector has not been profitable for the last 16 years because the amount paid for in claims and expenses continues to be in excess of that received in premiums.”

Thoresen said moves to reform the compensation system in Ireland had brought about a 16% decline in motor insurance premiums.

The news was welcomed by consumer group Which?. Chief executive Richard Lloyd said: “This is a plus news for motorists. Referral fees feed the growing compensation culture that was pushing up insurance fees at a time when many people are already feeling the pinch. It’s absolutely to ban them, and quickly.”

There isn’t an timetable when the ban will likely be introduced, although the plan’s that it will become a regulatory offence for firms to pay for and receive referral fees.

The government’s proposals currently before parliament target stopping losing defendants forking over a “success fee”.

The government is transforming regulations to ensure that in future whomever making the claim will likely need to cash success fee, as opposed to the defendant, plus the fee is going to be capped. The intended effect can be a fairer split of costs between parties and lower legal costs overall, which implies lower costs to feed to customers or taxpayers.

The proposals adhere to a Ministry of Justice consultation published in November 2010.

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