The referral fees involved in personal injury claims is a topic we have blogged about and condemned on so many occasions. We, as in independent firm of specialist personal injury lawyers who hate the concept of referral fees where middlemen profit from injury victims in return for passing details around, are proud to have never been a part of it.
Just in the last few months we were ecstatic to hear that our former Justice Secretary Mr Jack Straw had exposed what has been called the insurance industries “dirty little secret” when he investigated how the details of one of his constituents was passed around for profit following a road accident. We were overjoyed to hear the investigations concluded that the real reason for insurance premiums being driven up was a symptom of the referral fees rackets.
Now, it appears we are finally making some headway in ridding the country of the referral fee disease.
What is a Referral Fee?
A referral fee is a sum of money paid by a personal injury lawyer to a company for the details of an accident victim whom, in the majority of cases, has a very straightforward case with high prospects of winning. The biggest culprits are, unbelievably, your own insurance company.
It’s often called “Legal Expenses Insurance” or “Motor Legal protection” and your insurers will tell you that, should you have an accident in which you are not to blame, the insurance will be used for the purposes of making a claim with a solicitor.
Now, don’t get me wrong, the insurance is a form of insurance; but what happens is your insurers will hand your details over to one of their panel of lawyers for a fee of anywhere up to £1,000. That’s £1,000 your insurers are profiting for absolutely no work whatsoever, other than (I imagine) a telephone call to the solicitor to pass the information over, and banking their cheque.
Normally, an insurance company can have a panel of, say, 10 different solicitors who will all want the claim. Of course, only one of them can have it; so, how is this process decided? I imagine it’s decided by whoever has the most money to pay the insurance company.
Claims / Accident Management Companies and Other Referrals
It isn’t just the insurers guilty of making a quick tidy profit from accident victims claims; there are hundreds – if not, thousands – of claims companies out there, many of which you have probably seen on the TV and not even known they were a claims company, and many where you will have visited their website. They are not lawyers – just middlemen who will pass your details over to a law firm for a fee.
Garages, hire car companies, and even the police have been implicated in these sorts of activities.
Why is it a Problem?
So – why are referral fees a problem? Well, for the insurance side of things, the fact that accident victims details are being sold to scrupulous solicitors for a fee is being blamed for the increase in insurance premiums, which have risen by around 30% over the last few months.
The concept that insurance companies are blaming compensation claims for driving up premiums when you learn that it’s the insurance companies themselves who are selling the details of accident victims to solicitor is rather sickening! When it comes to rising premiums, they are making the bed, but we are the ones having to lie in it when we pay our premiums!
The other problem is the potential impact on the accident victim. When their details are passed around for money, who knows which companies have your personal information? Although that point is nowhere near as concerning as the real problem – you don’t get a choice as to who represents you for your claim, AND your access to quality legal services is seriously hampered.
But why?
Well, if your details are passed to Law Firm X, how do you know they are any good? You know nothing about their service agreements, financial arrangements with you or your insurers, and you know nothing about the people that will be handling your claim. Worse still, because they have paid out a huge referral fee of up to £1,000 for your claim, how on earth can they fund your case as well as an independent firm who hasn’t paid a referral fee?
And how will they try and recoup the money they waste on a referral fee? One of two ways – a deduction from your payout, or a seriously reduced level of service.
Think of it in a logical way – the referral fees they pay out are not recoverable from the other side. It’s a cost they must incur themselves. It can seriously reduce the budget they have to spend on your claim.
Think of it this way:
- A referral fee lawyer has £1,000 LESS to spend on you and your case
- An independent injury lawyer like us has £1,000 MORE to spend on you and your claim.
It means we can afford to provide you with fantastic service levels, such as contact at least every 14 days, private medical care at no cost to you, and a friendly and efficient service with office open from 9:00am – 10:00pm on all weekdays, as well as being open from 9:00am – 5:00pm on weekends; and you will have an actual qualified personal injury lawyer with conduct of your case.
Now, you ask the majority of people who have fallen in to the referral fees trap, and ask them how often they were contacted, or who was really handling their claim.
The worst part is that, with a cash strapped solicitor with less money to spend on your claim because they have wasted a huge proportion of their budget on buying your details, how can you really trust them to fight tooth and nail for the maximum payout? Or will they even be able to afford to fight for the highest payout possible?
What’s the News on the Ban?
If you read any of our several articles on the subject, you will have seen the many quotations from other bodies and organisations speaking out against referral fees. Both the Law Society and the Bar Council have recommended in the past that referral fees be stopped on the grounds that they have the potential to limit access to justice and reduce the quality of legal services on offer.
Following news of the pending ban, Justice Minister Jonathan Djanogly has, according to sources from the BBC (http://www.bbc.co.uk/news/uk-14846666), said “It’s certainly a racket. It’s a sick culture that we have to turn round.”
Interestingly, the source also confirms that the Association of British Insurers has welcomed the announcement; although I imagine the hundreds of insurance companies that have been profiting from referral fees will certainly not be welcoming the decision!
Chairman of the Bar, Peter Lodder QC, has also spoken out, saying that referral fees have “no place in a fair and open justice system… They are bribes and add an unnecessary cost to litigation.”
What Happens Now?
According to the reports, there is no timescale in place for the ban. The ban itself is certainly a welcome change, and will hopefully prevent any more accident victims falling prey to the referral fee system. I kid you not when I say that we receive calls day in and day out from victims of their own insurers referring them to a lawyer, and they always have the same complaints and issues: their solicitor never gets in touch with them, never calls them back, wants to settle for a low amount, and they never have a clue what’s going on. This is all because their solicitor just doesn’t have the funds to provide them with the good service that they deserve.
Who knows how many people have under settled their claims through the hands of the referral fee system?
Annoyingly, we have been in contact with many accident victims whose insurance company then allocate them a lawyer, and advise them that’s the way to do it. We give them the advice against this option, and many will understand it and instruct our independent, no cost, and quality service.
However, there are those that have chosen to implicitly trust their insurers; probably because they tell them things such as “you have to claim with our solicitor” or that “a no win, no fee lawyer will find a way of charging you.” Basically, they lie; and this is coming from firsthand experience, and conversations with real clients.
So the message here is – for those of you considering going down the referral fee route, or for those of you that have, heed these warnings; because you don’t just have to take our word for it anymore!
