Referral fee ban failing on all fronts

Back in 2011 when the government announced the referral fee ban it had three objectives: cutting car insurance premiums, fixing the dysfunctional claims system and reducing the number of claims.

I think it’s safe to say the reform is struggling on all three fronts.

Instead, the government has simply opened the way for insurers and claims management companies (CMCs) to make hay in glorious sunshine and edge solicitors further out of the system. How this improves the lot of clients is, as yet, still unclear.

If I were an entrepreneur I’d be opening a Greggs next door to Direct Line’s head office.

Right now, the insurance giant is having its cake and scoffing it down. Then opening a cake services division to ensure all future cake profits come straight in through the door.

Truly, this is a company with an appetite – and this week’s reported £423.9m profit will go down particularly well with shareholders. The company has managed to cash in lost referral fee income (£14m) for benefits worth considerably more.

And of course, soon it will be reaping the rewards from setting up its own legal services division which will altruistically shield existing customers from ‘potentially excessive third-party solicitor fees’. In other words, you can forget about any impartial legal representation.

And what did we get in return for this? In exchange for agreeing to reforms which helped deliver a 70% increase in profit, motorists saved 3% on their car insurance – roughly £20.

And what of the dysfunctional claims system? I’m pretty sure the government didn’t have First4Lawyers’ expansion in mind when it dreamed up the ban.

But what we have now is a CMC, buoyed by adverts featuring dancing workmen and Andrew Castle, reporting that business is booming and in need of more panel firms.

Of course, what Direct Line is doing is perfectly legitimate, partly on the basis that the referral fee ban has as much bite as Shane McGowan. The government may revel in the number of CMCs closed in the last year, but like that crocodile game at the seaside, more will pop up in due course.

The referral fee is dead, long live the collective marketing scheme!

Is the system any less dysfunctional than before? Are chancers any less likely to ‘have a go’ at compensation payments? Have we cut the number of annoying daytime TV adverts? Hardly.

If the compensation culture really was the target for this government, it has missed. Instead, like an army that invades then withdraws before securing stability, it has simply created a vacuum already filled by claims managers and insurers.  

John Hyde is a Gazette reporter