The insurance sector could be set to benefit now that AXA has decided not to accept referral fees in personal injury compensation cases.
Moody’s, the credit ratings firm, says that the fees paid by insurance companies as a result of claims farming far outweigh the referral fees they receive when they refer a claim to personal injury solicitors.
Any reduction in claims farming has to be seen as a credit positive move for the sector, the report said. AXA UK made its announcement following the reforms that were announced in the Jackson review last year and the increasing awareness of the impact of claims farming on the pricing of insurance policies.
Comprehensive motor insurance premiums increased by around 40% in the year ending March 2011 and this large increase is blamed on the rise in personal injury claims and the associated legal costs.
Reduced referrals will lead to a reduction in the legal cost of personal injury claims and Moody’s expects this will lead to reduced legal fees and speedier settlements.
However, it went on to point out that motor insurance only makes up about 30% of insurers’ portfolios and these improvements will not transform UK non-life insurers’ overall profitability. And Moody’s went on to warn that AXA could be at a disadvantage if other insurers do not follow their lead.