“Referral fees” also known as “acceptance fees” are the payments insurance companies and claims management companies receive for passing details of their injured customers to lawyers on their panels in order to claim compensation.
To be on the insurance approved panel, a solicitor will generally agree to pay the insurance company a certain amount in respect of each claim referred to the lawyer.
The Legal Services Consumer Panel Report last year revealed the large sums of money that change hands between panel solicitors and claims management companies. A claims management company typically receives referral fees of £800 from a solicitor when details of an injured person are sent to a lawyer regarding a road traffic accident claim. If you add the cost of medical experts, car hire and others, the total commission received by a claims management company in a single claim can reach £1,500.
Insurance or claims management panel solicitors are not picked on the basis that they are the best lawyers experienced in the personal injury field. Selection to the panel is driven by who pays the highest referral fees.
In the weekend Telegraph of 3rd July, the paper reported that Admiral’s 2010 full year results, 142.4 million of its UK car insurance profits came from “ancillary” sales, the so called “referral fees” from lawyers.
The desire of some insurance companies and claims management companies to secure referral fees from their panel solicitors is becoming a big problem.
From our experience, clients who contact their insurance companies following accidents are not properly informed as to their right to refuse a panel solicitor. Customers are made to believe they have no choice but to use a panel solicitor. The advice our clients have been given is confusing or outright misleading.
Ex- justice secretary Jack Straw has pledged to introduce a referral fee ban himself if the government does not act first. He said he would table an amendment to the government’s Legal Aid, Sentencing and Punishment of Offenders Bill.
The Law Society has also written to Justice Secretary Kenneth Clarke urging him to immediately ban referral fees. Society President Linda Lee said:
“We are asking the government to step in and ban a practice that is ethically wrong, treats accident victims as commodities for sale and adds no value to the system”.
The Association of British Insurers (ABI) has supported the need to ban referral fees. Nick Starling, ABI’s director of general insurance and health said:
“Unless action is taken, the compensation culture will become more prevalent and the cost of insurance will continue to rise. We are calling on the Government to crack down on “no win, no fee” claims as part of an overhaul of the whole personal injury compensation system.”