Insurers reckon selling names and contact details of road accident victims to lawyers who take a slice of any compensation paid out has pushed the price of car cover up by 50% in the last 18 months.
But the industry seems divided on doing away with the cash referral fees generates.
Axa has scrapped the fees – while Admiral has just handed 5,700 staff £1,500 in shares, which cost the insurer £8million.
Referral fees have pumped in £147 million to help boost Admiral’s pre-tax profit by 27 per cent to£160.6 million for the six months of this year. The company has confirmed customer information will be sold until the practice is made illegal.
James Dalton, the assistant director of the Association of British Insurers (ABI), which is leading the campaign to scrap fees, said: “Referral fees should be banned. They are part of the merry-go-round of fees in the system and drive the compensation culture.
“The government appreciates that the cost of the dysfunctional civil litigation system we have are high and this is translating directly into higher motor insurance premiums for customers. They know there is a lot of money sloshing around in the system.”
Justice minister Jonathan Djanogly described referral fees as “symptoms of a rotten suing culture”, although he has not confirmed the government would ban them.
The ABI wants to persuade the justice minister to include the referral fee ban in a legal aid bill currently working through Parliament by inserting a new clause.
The clause would stop insurers, garages and even the police from selling on personal information.
Admiral disagrees with the referral fee culture, but claims the problem is with costs charged by lawyers rather than the fees themselves.
“Referral fees are bad news and should be banned, but the real reform should be a reduction in legal fees,” said Admiral’s chief operating officer, David Stevens.
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