Compulsory third party motor insurance supports an entire industry, with a complex money-go-round, which even insiders can struggle to understand.
One certainty is that there is only one cash “input” keeping the wheel turning, which is everybody’s motor insurance payments (premiums).
There are many “outputs”. People from many professions, all making a living from our motor accidents – insurers, lawyers, brokers, claims management companies, car-hire firms, garages, and others. Perspectives on the current controversy about “referral fees” usually depend on which part of the industry employs the author.
Outsiders, like Jack Straw MP, sometimes offer their insights. So, in June, we heard his expose of insurers’ “dirty secret”, (selling customers’ details to claim firms), so seemingly cutting their own throats for a quick referral fee buck.
“Claims management companies” make their cut by selling information on to lawyers. So if it was an insurers’ own insured driver who caused the accident, this practice would be the original shot in the foot by insurers, and for that reason, seemed (frankly) unlikely. Some insiders possibly wondered why Mr Straw had not enquired into all this while still Minister of Justice. Others, sitting back to enjoy the fun, waited for the insurance industry to comment.
Stuart Morgan, head of claims at market leader Admiral Insurance, has replied (in an interview quoted in this week’s edition of the Law Society Gazette); “Admiral does receive referral fees but we don’t sell customers’ data. We have customers who have road accidents who say they’ve been injured and we put them in touch with a lawyer who will pay us a referral fee. Most insurance companies do that and if we didn’t someone else would. “
There is indeed a big difference between an insurer helping its own injured policyholder get legal advice, and the “dirty secret” practices supposedly exposed by Mr Straw. That said, many motorists might reasonably class a transaction involving the passing of information one way, and a fee the other, as a sale of that information.
The “if we didn’t someone else would” argument sounds equally plausible in the mouths of the lawyers, (whose professional code of conduct, by the way, stipulates that lawyers must draw their client’s attention to any payment in connection with any referral). However, remembering that the only cash input into the system is motorists’ premiums, a fair representation of the “bottom line” might be that it is not actually the lawyers who are “paying” these fees at all. In the end, we are all paying.
So we can all be glad that the present Minister of Justice has promised new law to ban these fees, which are essentially payments to middlemen for valuable information.
There is no point pushing the problem around the money-go-round, so we can all hope that when the Government comes to legislate, it will be an outright ban, covering all sections of the industry, because the more people on the merry-go-round the slower it must go.
In the meantime, in anticipation of the new law, a counter to spiralling premiums could be: to motor-accident solicitors, don’t pay them; to insurers: don’t accept them and; to the innocent victim of a road traffic accident: cut out the middle man, and go and see a solicitor.