A report from the Transport Select Committee last week called for “greater transparency” on the referral fees paid by injury lawyers seeking to represent the victims of car accidents. But would transparency alone be enough to put the brakes on the ‘compensation culture’ that is forcing all of our insurance costs through the roof, or does the government need to step in with legislation?
“Wider access to justice is to be welcomed, but it has come at a significant cost, with far more personal injury claims being made than in the past.” These were the words of Louise Ellman, Chairman of the Transport Select Committee, as she presented a report to MPs that called for personal injury lawyers to be open about the fees they pay to garages and insurers in exchange for personal information about people involved in car accidents.
Her recommendation was for the insurance industry to work with the police to tackle an issue that is spiraling out of control. The report painted a disturbing picture of a “merry-go-round” in which injury lawyers and accident management firms pay referral fees for information, prompting more and more people to make personal injury claims, with the burden of compensation for those claims then falling on the shoulders of insurers, who then have to increase the price of their premiums.
Ms. Ellman said: “The police made plain to the committee that ‘staged accidents’ are on the increase and that, so far, we have been lucky there have been no fatalities resulting from such incidents.
“That luck may run out unless the insurance industry acts rapidly to help the police target this kind of fraud.”
Clearly there is a significant issue here, when the statistics show that the number of people killed or injured on Britain’s roads has dropped from 341,592 in 1989 to 222,146 in 2009 and yet, over the same period, the percentage of motor insurance claims cost attributed to bodily injury claims has gone from 20 per cent to 50 per cent.
The rising cost of insurance premiums is startling, with the average price of a policy expected to go up by 40 per cent this year.
Moneysupermarket car insurance expert Peter Harrison said: “It is more important than ever at the moment to make sure you get the best deal on cover, especially when escalating fuel prices and the rising cost of insurance cover is hitting motorists hard. Our analysis shows car insurance prices increased by 31 per cent in 2010 – or 44p per day.”
The referral fee issue is not, however, seen as significant enough for the government to step in with legislation.
In 2010, the Lord Justice Jackson report recommended a measure to curb the growing trend in personal injury claims. He proposed that the losing party in personal injury claims should not have to cover the legal costs of their opponents and he called for referral fees paid by personal injury lawyers should be banned.
Global financial management organisation Towers Watson criticised the Transport Select Committee report for not recommending the implementation of Lord Jacksons measures.
In a statement, Towers Watson’s Duncan Anderson said: “The committee has recognised that there is something not right about bodily injury claims costs rising 30% annually when the number of traffic accidents has been decreasing steadily for a number of years.
“But I would like to have seen a stronger endorsement for the recommendations of the Jackson Review rather than recommending a further study next year into what can be done to bring the level of personal injury claims more into line with other countries.”
He added: “It’s really only accident management companies and personal injury lawyers who refute the link between referral fees/‘no win, no fee’ arrangements and bodily injury costs. One only has to look to the evidence presented on the regional differences, particularly between England and Scotland, to understand the effects.
“Calling for transparency on referral fees throughout the insurance industry is good for the consumer, but delaying addressing the underlying issues certainly is not.”
