Legal industry responds to new referral fee ban

Personal injury news roundup: 7 days ended 9 Apr 2013:

So it’s official – referral fees are now a thing of the past when it comes to personal injury solicitor firms – and the legal industry has begun adapting.

If you’re not familiar, the whole ‘referral fee’ business – which is really just buying personal details of those involved in things such as road traffic accidents from insurers in order to then pester these poor people into bringing personal injury claims – has been said to be responsible for heightened insurance rates. The rationale behind isurers taking referral fees was originally to make life harder for your competitors: for instance, Insurer A sells the details of customers involved in accidents with customers of Insurer B in the hopes that solicitors will sue the pants off of Insurer B and drive their competitor out of business, but lo and behold Insurer B does the same thing right back to Insurer A; repeated across the entire industry in a kind of vicious circle, this does nothing but make everyone but lawyers miserable.

New legislation just banned this practice, but there’s plenty of room to get around this because of the rather narrow definition of ‘referral fee,’ which means that there are ways to still generate leads for personal injury compensation claims if a law firm is keen enough to do so. However, there are some legal firms that are formally declaring that they’re not going to pay for cases in any way, shape, or form any more; one of these law firms, Antony Hodari, made a public resolution to develop new market routes that leave off having to generate leads by paying an insurer for them, as a referral fee with a fig leaf is still a referral fee.

It’s fantastic to see a law firm that’s actually interested in keeping true to not just the letter of the law but the actual spirit of it as well – in fact, I think it’s a breath of fresh air. Of course this means that they won’t have to pay hundreds of pounds per referral any more, which leaves some insurers without a rather sizable chunk of revenue – Admiral, for instance, made about 5.6 per cent of its total profits by taking referral fees, and now that they’ve lost that revenue stream the insurer has announced that it’s throwing its hat in the ring by stepping into the legal sector with a pair of Alternative Business Structure joint ventures.

This is a rather shrewd move on Admiral’s part, made all too easily by ABS rules that allow non-lawyers to launch firms that provide legal services as long as they comply with certain provisions. It’s interesting to see Admiral looking to make money off of the legal claims industry even as it spent so much time and energy condemning it for creating a so-called ‘compensation culture’ that drove premium prices up so much, isn’t it?

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