Referral fees banned in compensation culture crackdown

The government is to ban referral fees in a move it hopes will reduce car insurance premiums and crackdown on ‘compensation culture’.

Referral fees are paid by accident claims solicitors to car insurance companies when they refer customers to legal firms. It’s believed that this encourages victims of motor accidents to seek personal accident compensation and has lead to an increase in claims for compensation  when drivers have accidents. Its made worse by a ‘no win, no fee’ system which makes it easier for drivers to seek compensation at no risk to themselves.

Justice Minister Jonathan Djanogly said: “Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life.

“We will ban referral fees and we will go further. We have proposals before Parliament to end the bizarre situation in which people have no stake in the legal costs their cases bring. This will make claimants think harder about whether to sue and give insurance companies and business generally an incentive to pass the savings onto customers through lower prices.”

The Government’s proposals currently before Parliament focus on stopping 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. 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.

Author: Faye Sunderland, September 9th, 2011
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