Government ban on referral fees: reaction

The Ministry of Justice has announced plans to abolish the controversial referral fees paid to insurers for passing on details of accident victims to third parties. The payments have been blamed for inflating the number of personal injury claims in the UK and the cost of insurance.

Jonathan Djanogly, Justice Minister:

"The ‘no-win, no-fee’ system is pushing us into a compensation culture in which middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices.

“Honest motorists are seeing their premiums hiked up as insurance companies cover the increasing costs of more and more compensation claims. Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.

Otto Thoresen, director general of the Association of British Insurers:

“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”

Paul Evans, chief executive of Axa UK:

"This is an important step in curbing the compensation culture which has been instrumental in inflating motor insurance premiums. However, it should be recognised that referral fees are, in many respects, the tip of the iceberg. The Government must also consider how to contain the growth in whiplash claims."

Motor insurance group Admiral:

"Admiral welcomes any action taken to curb the compensation culture that currently exists in the UK motor insurance market.

"Admiral does not sell customer data; if one of our policyholders has a non-fault accident, suffers a bodily injury and they require assistance, we will put them in touch with a personal injury lawyer."

Barrie Cornes, analyst at Panmure Gordon:

"The Ministry of Justice has announced that it will ban the payment of referral fees. This is good news although we believe that it will have little/no impact on the likes of RSA or Aviva. Admiral has issued a statement this morning welcoming the proposed change and restating the anticipated impact (c6pc of UK motor profitability of c£16m of 2010 pre tax profit)."

Kevin Ryan, analyst at Investec:

"Our Sell recommendation on Admiral has always been based on valuation. We continue to believe that trading at 16x our forecast earnings is too expensive. As the only consistently profitable UK motor insurer, a premium rating of around 10x seems more appropriate to us. Admiral's core business is UK motor insurance for individuals. The product is a commodity and the market is cyclical and only occasionally profitable. Given this background, coupled with today's news, we retain our Sell recommendation.

Tim Oliver, president of the Forum of Insurance Lawyers:

“FOIL welcomes the announcement from the MoJ of a ban on referral fees, something we have been campaigning for for some time. Referral fees were symptomatic of an unbalanced civil justice process layered with unnecessary costs, to the detriment of wider society as a whole. FOIL now hopes the government will press ahead with implementing Lord Justice Jackson’s reforms set out in the Legal Aid, Sentencing and Punishment of Offenders Bill, that will further reduce the costs of civil litigation and lead to a fairer, more proportionate civil justice process for all. We also call on the MoJ to take a look at the level of fixed fees and hourly rates in the Road Traffic Accident Portal, which we believe could be further reduced. These are positive steps on the road to a more proportionate, fairer and less costly litigation system to the benefit of consumers, taxpayers and businesses alike.”

Susan Brown, director at claimant law firm Prolegal:

"Consumers will suffer. Access to justice and freedom of choice of solicitor are not empty phrases. These concepts are vital to the survival of a healthy civil justice system, and both are likely to suffer if referral fees are banned because the vast majority of personal injury claims will fall into the hands of unqualified, inexperienced staff, many of them working within businesses controlled by insurers.

"Insurers’ enthusiasm for a ban on referral fees is not based on distaste at the notion of that clients are a commodity to be bought and sold, but on the fact that they regard this as the ideal opportunity for them to remove independent solicitors from the process altogether. "

Ashwin Mistry, chairman of independent broker Brett & Randall:

"Referral fees are immoral. Consultation must now involve insurance brokers who can help ensure these fees are affectively banned from the system."

Adrian Brown, UK chief executive, RSA: "While we welcome the MoJ's decision to ban referral fees and look forward to seeing the details, we fundamentally believe that a wider root and branch review of the structure of personal injury legal fees and payments for soft tissue injuries is needed; referral fees are a symptom rather than the root cause of the problem.

"We are also encouraged by Jonathan Djanogly's comments earlier today (9 September) about the Government's plans to address the wider issue of civil litigation funding and costs, including fundamental reforms to 'no win no fee' conditional fee agreements.

"For customers to truly benefit, the whole system needs to be reformed."

Direct Line Insurance:

"Direct Line welcomes the announcement by the Ministry of Justice that referral fees are to be banned. The use of these and the associated high legal costs have been a major contributor to the increases in motor insurance premiums.

"However, to ensure consumers benefit from this decision, it is important that lawyers’ fixed costs are reduced accordingly, otherwise insurers and their policyholders will continue to foot the bill, as without the income from referral fees claims costs will not be able to be subsidised."