Motor insurers stand to pocket billions in extra income a year if a recommendation to retain referral fees is acted on, a leading personal injury lawyer has claimed.
John Spencer, former Motor Accident Solicitors Society chairman and director at CS2 Lawyers, said the Legal Services Board report on referral fees published a fortnight ago spells good news for direct motor players that receive large sums for selling cases to law firms. His claim runs counter to the stance of the industry’s trade body, the Association of British Insurers, which has campaigned for their removal.
Mr Spencer estimates that insurers and brokers will receive up to £3.2bn in referral fee income and £1.6bn in ancillary services income in 2010/2011 alone. The figures are based on claims data from the Compensation Recovery Unit and the ABI’s before-the-event insurance data.
He told Post: “Direct players are likely to be relieved by the decision on referral fees. They make a lot of money out of them and it is not just one or two players that receive large amounts of money. It is a questionable practice.”
Mr Spencer added: “Last year, there was a 17% growth in motor accident claims so without a change to the referral fees landscape it is difficult to see how this trend could be reversed.”
Royal Bank of Scotland Insurance director of underwriting and pricing Andy Goldby admitted it receives referral fee income but added firms involved in claims farming gain more from the practice.
He told Post: “RBSI does receive referral fees from selected suppliers, however, insurers are not the primary benefactors from referral fees. A whole number of industries are involved, and some have their entire business models based on receiving referral fees.”
Mr Goldby added: “Our consumer research has shown that 44% of those involved in an accident were contacted regarding making a claim for personal injury, over a year after the event. This in itself demonstrates how a high amount of injury claims are initiated due to claims farming activity, rather than from insurers referring customers to solicitors.”
News of the LSB’s recom- mendation triggered a rise in the share price of motor insurance giant Admiral, with its value climbing 36p to 1723p on 31 May.
As part of its 2010 UK car insurance results, Admiral, which does not include a breakdown of the amount earned from referral fees, reported £142.4m in ancillary income and profit of £275.8m.
In an investment note, Ben Cohen, analyst at Collins Stewart, which recommended the stock as a ‘buy’, said: “After the Lord Chancellor recommended earlier this year the wholesale adoption into law of the Jackson Review, which reviewed civil litigation costs, we had been concerned (from the point of view of Admiral’s ancillary income) that referral fees might in turn be banned. This now seems unlikely.
“Ancillary fees in total are a key profit contributor, and, given the multiple we apply, generate the largest part of our sum of the parts valuation.”
The ABI and Admiral refused to comment.
Medico-Legal News Source: PostOnline
