Press Release: Could a Ban on Referral Fees Cause Solicitors to Bypass Whiplash Claims?

Referral fees are monies paid by a solicitor to an introducer for new clients. Introducers, also referred to as claims management companies, are often seen on television advertising their services to those who have suffered a personal injury as the result of an accident or a situation that was the fault of someone else. For a fee, they will refer the case to a firm of solicitors, effectively introducing them to the claimant. The legitimacy of this system has been the subject of much debate in the legal profession, as introducers can charge solicitors anything from �£600 to �£800 for even the smallest of claims. The perceived problem is that these costs are passed on to the insurance company. The reality is that the solicitors bear these costs as their “marketing costs” just as any other business will bear the costs of advertising in newspapers, on television etc.

Until 2004, solicitors were banned from paying referral fees. After this legislation was overturned, it saw the birth of vast numbers of introducers and claims management companies. In many respects this worked for solicitors, as it meant they could leave the mechanics of advertising and marketing to the middlemen and simply concentrate on looking after their injured clients. Claims management companies argue that using the referral fees system has made the public more aware of their rights and gives them greater access to justice. However, Lord Justice Jackson dismissed this argument in his review of the costs of civil litigation.

Lord Justice Jackson’s view is that it is wrong for, “personal injury claimants to be treated as a commodity”. His recommendation will be for referral fees to be abolished, saying that there are plenty of other avenues that claimants can pursue in order to carry out litigation. Interestingly, he singles out the claims management companies as the protagonists in this system, believing that, “the vast majority of solicitors are honourable professionals and would respect such a prohibition, whether imposed by legislation or by rules of conduct.”

Detractors of his views are worried that the banning of referral fees would mean those cases of apparently lesser worth, such as whiplash claims, would become financially untenable for many solicitors. As cases go, they do not incur much revenue and, without the facility to reclaim costs, solicitors simply would not be interested in them.

Nicholas Jervis, managing director of insurance claims specialists, 1stClaims, holds a different view. He says: “Many tend to forget that the important person in the equation is the claimant, i.e the injured accident victim. While many solicitors are entirely dependent on introducers for their business, there are those who will still take a case on its merits rather than its financial worth. However, there may be measures that could make the ban work for everyone, such as the capping of referral fees to a reasonable level and proper enforcement by the Claims Management Regulator of people regularly breaching the current rules. Ultimately though I am not confident that there is enough interest in really protecting the consumer. Everyone seems much more interested in allowing insurance companies to make more profits, in my humble opinion.”

With only a month to go before the ban is either enforced or not, many solicitors and the majority of introducers will be waiting in keen anticipation of the law’s next move.

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Whether a Claims Company or a Solicitor is the right choice for you
What does it mean if you have Legal Expense Insurance (and do you have to use the solicitor that they tell you too if you do not want to)?
How to obtain private treatment for your injuries at no cost to you
How to quickly obtain a replacement car or motorcycle if you need to
Why accepting an offer directly from the other driver's insurance company could cost you thousands of pounds and lead to longterm injury problems

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