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Admiral defends its position on
referral fees in car insurance
25 July 2011
by Eleanor Morris
Admiral Insurance
CEO, Henry Engelhardt, in a bullish statement on the issue, has called
for the Government to abolish referral fees in car insurance if they wish them
ended.
Talking
about so-called acceptance fees that are paid to Admiral by injury
lawyers when the insurer provides them with a new
client, he comments: "Let them [the Government] change the law. We are
not doing anything illegal and we are not doing anything immoral. We're
not doing anything that I would not tell my mother about."
The
Association of British Insurers (ABI) has estimated that for every
£1 paid in compensation for car insurance injury claims, 87p is
paid in legal fees. This amounts to £2.7 million
paid every day to lawyers, largely financed by motorists'
premiums.
According to the Telegraph, where Engelhardt's comments
were reported, the Admiral Chief attributed the high legal costs in car
insurance to the last Government's decision to abolish legal aid for
injury cases more than a decade ago. Pursuing such claims via the more
costly conditional fee agreements (CFAs) of 'no win, no fee' cases
became the only way for claimants without personal wealth to access
justice and this has led to higher legal costs.
Indeed, the Government would not dispute this. Lord Justice Jackson's
review of civil litigation costs led to numerous recommendations
that were all centred around replacing CFAs with a cheaper alternative
that demonstrated 'proportionality' in terms of the legal fees'
relationship to the damages award.
The Tory-led coalition embraced these
recommendations which have been encorporated into the Legal Aid,
Sentencing and Punishment of Offenders Bill, which was debated in
Parliament for the first time earlier this month.
One notable omission from the Bill was the Government's decison not to
include a ban on referral fees, despite this being a central component
of the 'fix' recommended by Lord Jackson. However, following a timely intervention by
former Justice Minister, Jack Straw, who called the payment of
referral fees by lawyers to car insurance companies 'a racket', the
Government appears to be preparing the ground for a rethink.
The Prime Minister has declared the Government "sympathetic" to a
referral fees ban while Justice Minister Lord McNally recently said
that the Government is "looking at how to tackle the issue [of
a ban on referral fees] as part of our wider reforms, and at
how we could do so in a way that would be effective.”
Furthermore, although the Transport
Select Committee review of the high cost of motor insurance did not
recommend a ban on referral fees, favouring only greater transparancy,
the Chair of the Committee, Louise Ellman MP, has intomated that
the committee will re-open their enquiry to take evidence from Jack
Straw (and other witnesses) in the Autmun in order to look
specifically at referral fees and it can be expected that a
recommendation of a ban will follow.
Admiral CEO, Mr Engelhardt, has called for a change in the
law
to make it a requirement that whiplash be "medically proved", rather
than disproved (as currently), in car insurance injury claims.
Whiplash, usually settled for almost £4,000 per case, features in
80% of personal injury claims settled by car insurance providers.
Twenty-five percent of all car insurance claims include an injury
claim. In
the North West, where there are the most claims management companies
operating, 40% of claims include an injury claim.
As the UK is the whiplash capital of Europe and personal injuries are
the main reason for escalating car insurance costs, Engelhardt
has good reason to identify this as an area for reform. However, in the
absence of a specific clinical test to confirm or exclude whiplash,
doctors will always need to rely on patient testimony to make the
diagnosis and this, of course, is open to fraudulent manipulation.
Admiral
profits could be at risk on the short-term if referral fees were banned,
but their COO, David Stevens, states that acceptance fees paid by
lawyers only account for 12% of their 'ancillary' income (that is,
income from sources other than premiums paid by motorists). The 'hit',
then, from a referral fee ban, although significant, should be
relatively easily
absorbed.
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