Referral plans may send insurance sky-high

>> Tuesday, September 13, 2011

The government’s plans to ban referral fees may lead to drivers facing increased debt problems as insurance premiums climb even higher.
Referral fees refer to the practice of insurers trading details of accident victims with lawyers in exchange for cash. Claims firms often pay solicitors to pass on possible personal injury claims – on a no-win, no-fee basis. This technique has often been blamed for pushing insurance prices up – the average comprehensive policy now stands at nearly £1,000.
The government’s proposal seems likely to increase the cost of insurance even further, applying pressure to already tight finances.
Admiral chief executive Henry Englehardt told the Mail Online: “The Government needs to set a cap for injuries such as whiplash at, say £750 and £150 to lawyers. At the moment, victims can get £2,000. If referral fees are banned, the result would be car insurance going up.”
For Admiral, referral fees reportedly account for six per cent of their profits. After the plans were revealed, shares in the company fell seven per cent – reducing the value by more than £260 million.
Justice Secretary Ken Clarke announced the proposed ban last week, with Justice Minister Jonathan Djanogly calling for the “compensation culture” that benefits the “middle man” to end.
Martin Saunders, the technical manager in the claims department of insurer Allianz, said: “Banning fees still leaves money in the system and it’s the money in the system that ultimately equates to the premium that consumers... are being charged for insurance,” reports Cleardebt.
If insurance premiums rise further, households will struggle each month, particularly considering the price of insurance has already risen by 40 per cent in one year.

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