Tweet
Politicians' attempts to stop the 'self-serving merry-go-round' driven by motor accident claims are unlikely to be effective
The referral fee merry-go-round will soon grind to a halt. That, at least, is the intention of the Ministry of Justice, which last week bowed to calls from Lord Justice Jackson and Jack Straw to announce a ban on referral fees in personal injury cases.
Where motor accidents lead to a legal claim for damages, the injured person usually finds their way to a solicitor through a middleman, often a claims management company (CMC) or insurer, who receives a generous fee for the introduction.
Speaking in the House of Commons this week, Straw accused CMCs, personal injury lawyers, credit hire companies and repair and recovery firms of building
"a lucrative and self-serving merry-go-round in which the personal information of anyone involved in any collision with another vehicle, no matter how trivial its effects, is traded like a commodity, typically for £600 to £800 a shot, with the aim of pursuing a claim – any claim – provided that it brings rich rewards to all those involved in this industry".
He also didn't spare insurers when handing out blame for the growth of the claims industry (although it was an industry given legs by Labour's Access to Justice Act 1999). Despite their active campaigning against referral fees, many insurers actually receive them too, working on the principle that if you can't beat them, you might as well join them.The government had been putting off a decision pending the Legal Services Board's investigation of referral fees. This concluded in May that there was no regulatory case for a blanket ban, calling for greater transparency instead, but left it open for public interest arguments and sector-specific bans. It was a much more nuanced finding than has been reported, and it does not reflect well on the justice secretary, Ken Clarke, to announce simply that he had rejected the board's advice.
By contrast Clarke was generous in his praise of Straw's campaign for prompting a decision – and certainly his high-profile intervention in June appeared to change the government's previously relaxed mood on the issue.
There are strong arguments on both sides: on one hand referral fees push up costs and encourage a grasping compensation culture; on the other they have enabled access to justice and represent an unexceptional business practice, indeed just another form of marketing. Further, the "no win, no fee" system means there is no benefit to solicitors in running duff claims – unless insurers make a commercial decision to pay out rather than spend time and money defending them.
But whatever the rights and wrongs, this is a policy that is likely to be far more effective in grabbing headlines than in actually stamping out referral fees. For one thing, the government admits that there is no accepted definition of a referral fee. So if I, as a solicitor, decide to outsource all of my marketing activity to someone else, and pay them for bringing in clients, should that be banned? It is a hard argument to sustain in a free market and shows how hard it will be to capture the many types of arrangement that can be thought up (and were before referral fees were allowed in 2004).
Currently CMCs bring in the clients, while some also provide investigation services. The advent of alternative business structures in the coming months – strongly supported by Clarke in a speech on Wednesday – means that CMCs will be able to employ lawyers and then just handle the entire case themselves, from initial inquiry to settlement cheque, without a referral fee in sight. The government won't be able to stop that.
Speaking on the Today programme last week, the justice minister Jonathan Djanogly suggested that the ban, along with Jackson's other reforms currently going through parliament in the legal aid, sentencing and punishment of offenders bill, will stop claims text pests and cold callers. But nothing here directly does that; the reforms are attacking the business model of the claims industry, presumably in the hope that they will be squeezed out (this is an industry worth nearly £600m, however). In fact earlier this year Straw expressed regret that he didn't ban claims management companies when he was justice secretary.
And referral fees are just the Trojan horse. There is no gain to insurers if the fees paid to solicitors do not fall following a ban and that stage of the campaign is now well under way. For a basic road traffic accident solicitors are paid £1,200; Straw reckons it should fall to £600. Solicitors in turn will argue that the money they spend on referral fees will now be spent on other marketing methods. Everyone else builds marketing costs into their fees, so why not solicitors? It will not be easily resolved.
Side by side with this is an assault on whiplash claims themselves, the incidence of which is rising fast. Are British necks weaker than those of our European counterparts? Is it a made-up condition that gets you a couple of weeks off work and a couple of thousand quid from a gullible insurer? Or is the modern manufacture of cars to blame?
What insurers would really like is to resolve claims themselves without the need for a lawyer at all. They produce statistics to prove that claimants would be no worse off if this happened, but it is hard not to be sceptical. A good start would be for insurance premiums to go down in the wake of all these changes.
Referral fees are actually a bit of a sideshow. The motor insurance debate has a long way to run.
Neil Rose is the editor of LEGAL FUTURES
Neil Rose
guardian.co.uk © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds
More...
