Some mornings it seems that representatives of the insurance industry are queuing up to appear on the radio complaining about the so called ‘compensation culture’. Many people are surprised to learn however that they are actively participating in the increase in the number of claims about which they so bitterly claim.
The House of Commons Transport Select Committee has recently shone some light on the murky world of these referral payments. Essentially insurance companies put people who make a claim on their insurance in touch with panel firms of solicitors who pay the insurance companies referral fees reportedly averaging between £200 and £1,000 per case. The law firms then make claims on behalf of these clients which are often dealt with by other insurers who then complain about the rise in claims but in particular that element of the cost of those claims which represents legal costs. Common sense suggests that the presence of these referral payments in what the Committee referred to as ‘a merry-go-round’ must increase the cost of the overall process somewhere. Surely a simple solution for these insurance companies who complain so bitterly about this would simply be to stop paying these referral fees such that costs would be reduced. Unfortunately the insurance industry makes a lot of money from these referral payments. In one sense of course the insurance companies do not necessarily lose out from a rise in premiums. A relatively harmless merry-go-round or something more sinister – what do you think?
Paul Grimwood, Partner, Civil Litigation
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