motor insurance referral fee ban outlined
13 September 2011
Jack Straw today introduced his Motor Insurance Regulation Bill
to parliament, under the ten minute rule. This follows the
statement of Jonathan Djanongly last week that the Government will
implement a ban on referral fees in relation to personal injury
claims.
Straw’s Bill proposes:
to make it a criminal offence to solicit, offer or pay for any
personal injury claim arising from a road traffic accident (RTA)
(Straw commented that he would propose to widen the Bill to injury
claims generally)
to require ‘clear objective’ evidence to establish a claim in
connection with whiplash
to reduce fixed fees for injury claims under the current pre
action protocol for low value injury claims arising from RTAs to
£600 (half its current value)
to prohibit insurers from isolating risk on the basis of a
geographic area smaller than a region.
Many interest groups, including insurers, public bodies and the
Law Society, believe that referral fees are unattractive and drive
up legal costs without there being any discernible benefit to the
general public. The fees form the basis of the business model of
claims management companies (CMCs), which are commonly seen as
having driven an increase in claims. At a typical value of £700 per
claim, this is a substantial layer of costs.
However, Straw’s Bill is unlikely to be sufficiently robust to
tackle many of the problems associated with the industry. For
example, one of his complaints was in relation to NHS trusts being
paid to advertise the services of personal injury companies but the
Bill will not affect such advertising. In addition, many insurance
companies currently profit from referral fees and the press report
this week about Admiral will feed fears that in fact even if these
changes are introduced, insurance premiums will not come down.
More fundamentally, the Legal Services Act will permit CMCs to
introduce new business models such as employing in-house solicitors
so that the means will exist so that CMCs will continue to profit
from fees in injury claims.
Proposals to reduce the fixed fees payable for such claims are
likely, in our view, to prove far more popular with liability
insurers. However, Straw’s figure would appear to be one that has
been reached with little research. While we would favour a review
of these fees, we see little merit in an arbitrary reduction,
particularly as this could be open to challenge in the Courts. In
addition, this figure is not consistent with the research carried
out by Lord Justice Jackson with his assessors.
We have also been concerned to hear that plans for qualified one
way costs shifting (which are separate from Straw’s Bill) may
include provision to prevent defendants from recovering fixed costs
under the process. That would undermine the key incentives for
claimants to settle claims early.
Straw’s additional proposals to restrict whiplash claims are
unlikely to prove effective and the proposals are somewhat woolly.
Surely if an expert reports, as is now the case, that there is a
whiplash injury, that would be “clear objective” evidence?
Straw commented in parliament that whiplash is “a profitable
invention of the human imagination” and questioned the reliability
of the experts who provide the diagnosis. Based on our experience,
we must disagree. Whiplash is a widely recognised injury, with a
well understood causal mechanism. While individual cases may be
questionable, it is rare to find an expert who dismisses the
existence of whiplash altogether.
In response to a private question, Straws’ office has informed
us “the requirement to provide more definitive proof of injury to
ensure we crackdown on fraudulent claims would obviously not affect
those with genuine injuries”.
However, the issue of fraudulent claims is entirely separate
from concerns over claims for injuries of limited severity.
Evidence of injury from an appropriate expert is already required
and “more definitive proof” may only serve to increase cost.
In our view, the steps already being taken by the industry to
deal with claims more efficiently under the pre action protocol for
low value injury claims arising from RTAs is more likely to reduce
litigation costs. We would encourage the Government to look again
at the introduction of a formal damages tariff for whiplash claims,
which will further reduce costs.
The Bill raises a number of important issues, but we are not
persuaded that the measures proposed are the right ones to address
them.
In our view:
the focus in relation to low value injury claims should be
procedural efficiency so that litigation costs are controlled
additional evidence in relation to whiplash claims is not
attractive as it will increase cost
a damages tariff for whiplash claims would be a valuable tool in
resolving these more quickly and cost effectively
costs in relation to the pre action protocol for injury claims
arising from RTAs should be kept under review, but a kneejerk
reduction is not what is required.
Straw’s Bill has yet to be published. We will circulate a
further email bulletin when it is published. The Bill will have its
second reading on 20 January 2012.
The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.