PERSONAL INJURY

Ban on Referral Fees in Personal Injury Cases

The “Compensation Culture”

The government has recently banned referral fees in accident cases as a measure to curb the, “compensation culture” in the UK.

“A ban on referral fees is a positive move by the Ministry of Justice as it creates a level playing field in solicitors acting on behalf of innocent victims and will help to  rid the plague of “ambulance chasing” claims management companies; and only genuine claims will now be brought for which Levi Solicitors LLP will be happy to help”. Darren Brown (Partner Levi Solicitors LLP).

Freedom of Choice

Prior to the ban, insurance companies sold details of accidents to claims management companies and lawyers. This meant that Claimants did not have any freedom of choice regarding the solicitor they instructed; and were unaware whether the solicitor they were instructing would provide good quality service.

Increased Insurance Premiums

The increase in claims against insurance companies, particularly in motor related accidents, led to insurance premiums for drivers.

The costs suffered by insurers in paying compensation to successful Claimants were recouped by the insurer increasing the premiums payable by their customers.

A typical scenario

• You have an accident and you are induced through a TV advert or SMS text message to make a ‘no-win, no-fee’ claim.

• Your claim is passed between claims management companies (who advertise compensation claims for accidents), insurance companies, lawyers and others who charge each other a referral fee for ‘referring’ the claim up the line (middle-men).

• The lawyer sues for compensation. If he wins, he can recover his costs and his “no-win, no-fee” mark-up on his costs from the losing defendant (or often the defendant’s insurance company) which will cover the amount he paid out as a referral fee. So the lawyer may pay hundreds of pounds as a referral fee because he knows he can get the money back.

• To cover the loss, losing insurance companies are forced to raise premiums, private companies are forced to put up prices, and public authorities pass the burden on to the taxpayer. 1

What does it mean in practice?

At Levi Solicitors LLP, we support the reforms. For those lawyers who supported payment of referral fees however, the reforms will certainly be unwelcome news. Insurers and claims management companies will also lose out on profit made from charging referral fees.

The benefit for our clients is that they come to us direct and cut out the middle-man, or claims management company, who often bombarded people with numerous unnecessary telephone calls. At Levi Solicitors LLP, we provide excellent quality service to our clients.  

Will the ban on referrals mean that insurance premiums decrease? This is what the Ministry of Justice believes, but only time will tell.  

There are many sceptics on this topic, including the Law Society itself, which stated 'The Society is however disappointed that the ban will not be extended more widely - for example into the area of conveyancing. The Society believes this approach is short-sighted and does not recognise the clear potential for consumer detriment that exists in respect of one of the most important transactions most people make in their lives”.   There is further work to be done by the government to ensure a watertight system.

If you have suffered an injury as a result of an accident, please contact Darren Brown on 0113 244 9931 to discuss how we can help. We specialise in injuries suffered as a result of a motor incident, an accident at work, an accident in a public place, catastrophic injuries (brain and spinal), psychiatric cases, stress at work and criminal injuries.
 

1 Source: www.justice.gov.uk