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Government to ban referral fees

Government to ban referral fees

Category: Car insurance

Updated: 26/11/2012
First Published: 09/09/2011

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This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The Government has moved to ban referral fees in personal injury cases, as it seeks to curb the UK 's 'compensation culture'.

The Ministry of Justice said that the current arrangements have led to high costs, encouraged a compensation culture and led to the growth of an industry which pursues claimants for profit.

Presently, personal injury details are sold on to lawyers by insurance firms.

Jonathan Djanogly, Justice Minister, said that honest motorists are seeing their premiums hiked up as insurance companies cover the increasing costs of more and more compensation claims.

"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," he added.

"Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents."

The proposals that have been placed in front of Parliament would see an end to losing defendants having to pay a 'success fee' to reimburse the claimant's lawyer for other unconnected cases he may have lost.

The Government is changing the law so that in future the person making the claim will have to pay the success fee, rather than the defendant, and that fee will be capped.

At present the losing party that is required to pay the fee is often an insurance company, meaning that losses are being recovered through hikes in insurance fees.

The intended result is a fairer split of costs between parties, and lower legal costs overall which means lower costs to pass on to customers or taxpayers.

The Association of British Insurers has welcomed the move, as has Consumer Group Which?

Simon Douglas, director of AA Insurance, said: "So-called 'referral fees' have become synonymous with the selling-on of driver details by a range of organisations to claims management firms, usually without drivers' knowledge.

"The reform of 'success fees' and capping of them will discourage many claims from being made in the first place."

The move comes just a day after the Office of Fair Trading announced that it is to look into the issue of rising car insurance, after figures showed that motorists are being hit by an average rise of 40% in premium costs.

The watchdog said it will decide whether any consumer or competition issues need to be resolved.

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