The Justice Minister, Jonathan Djanogly, recently explained how the government intends to tackle the UK’s personal injury compensation culture and the practice of acceptance fees for referring customers to no win no fee legal schemes.
Djanogly said that referrals were “rotten”, a statement the Association of British Insurers wholeheartedly agrees with.
However, not all insurers agree with the ABI’s call for a ban on referral fees. The CEO of Admiral, Henry Engelhardt, said his company will continue to take acceptance fees. He blames the current problem on the Labour government’s decision to abolish legal aid for personal injury claimants in 2000. This allowed no win no fee personal injury solicitors to step in and pick up demand from low-income accident victims.
Legal referral fees are thought to net the insurance industry a total of £100 million, which whilst it sounds a lot, is less than 1% of the UK motor insurance market.
Axa, on the other hand, last month announced that it would no longer take acceptance fees. At the time, Axa said it hoped the move would help combat fraud and reduce the compensation culture which is increasing the cost of motor insurance policies.
One insurance expert analyst claims that Admiral’s business plan is not sustainable because it adds to spiralling premiums. But, the insurer thinks motor premiums could be peaking and will not increase much further. Engelhardt said premiums have been increasing for the past two years and the pattern of the market suggests that once they peak, they will not rise for another five years.