Referral fees 'crucial' to insurance industry's earnings, Straw claims

Former justice secretary Jack Straw has accused insurance companies of earning up to £1,000 a time from referral fees, making them a 'crucial part' of revenue streams.

Writing in The Times today, Straw said a senior insurance company executive told him that referral fees were the industry's 'dirty secret'.

He called for a ban on referral fees and stricter control of claims management companies (CMCs), which he said had doubled in number to 3,400 in only two years.

Straw said an analysis by the ABI showed a direct link between the number of CMCs and the number of claims.

He said the costs of personal injury claims had doubled in ten years, at a time when the roads were getting safer, and said 80 per cent of all claims were for whiplash, which was 'usually entirely trivial'.

Nick Starling, director general of insurance and health at the ABI said he was pleased Straw had joined the association in calling for referral fees to be banned.

'It is not right that people take cash for tipping off lawyers about accidents which fuel personal injury claims, driving up costs for all motorists.'

Starling said referral fees should be banned 'as part of a whole package of civil litigation costs reform' which included a look at solicitors' fixed fees and hourly rates.

'With whiplash now at epidemic levels in the UK, we support Jack Straw's call to look at how whiplash is treated, how people's personal data is used and how claims management companies are regulated.'

Starling said last week's legal aid and sentencing bill was 'not the end of the story'.

Earlier this month the Bar Council said it was 'surprised and disappointed' that the Legal Services Board had shied away from an outright ban on referral fees, a view shared by the Law Society (see solicitorsjournal.com 6 June 2011).

The LSB said in its report on referral fees that frontline regulators could impose their own bans if they could provide sufficient evidence to explain their actions