Personal injury claimants could suffer from a ban on referral fees while insurers and lawyers would incur no extra costs, according to the government department proposing the ban.

An impact assessment of the proposed ban, published today by the Ministry of Justice, admits that ‘overall claimants might lose out’ from a ban on referral fees in personal injury cases, with individuals expected to be affected more than businesses.

However, lawyers are likely to incur no net additional costs, while insurers are expected to gain overall.

The report was compiled a month ago following the government’s decision to prohibit the payment and receipt of referral fees through a provision in the Legal Aid, Sentencing and Punishment of Offenders Bill (LASPO).

It states that the policy objectives are to reduce legal and related insurance costs and to discourage people from bringing unnecessary claims for compensation.

But the admission that claimants may lose out will be seized on by opponents of a ban, advocating the Legal Services Board’s position of increasing transparency instead.

The impact assessment says: ‘Some potential claimants may lose out if their claim is not brought forward without referral fees being paid, although there would be nothing to stop them contacting a lawyer directly to see if they have a valid claim.

‘This would depend upon the claimant’s ability to select the right lawyer for their case and upon the CMC’s incentives to do so.’

It adds that lawyers who currently pay referral fees may lose out from the reduced volume of personal injury business, but this is likely to be offset by no longer paying referral fees. ‘Furthermore, in future alternative business structures may see lawyers entering into partnerships with non-lawyers and this may negate the need for referral fees.

‘Finally, lawyers might benefit from getting more direct control over which cases to take on, achieving a more efficient matching process between lawyers and claimants taken on.’

There are also net gains for advertisers as a result of increased business from lawyers, and for insurers who will save costs from a reduced volume of claims, despite many also making profits from the sale of accident victims’ details.

The impact assessment again states that enforcement of the ban will be left to the Solicitors Regulation Authority. The ban is likely to take effect next October when the LASPO bill becomes law.

Meanwhile, the government’s referral fee ban has come in for criticism from both claims management companies and defendant insurers.

The Claims Standards Council has written to the government warning it will start judicial review proceedings if the ban goes into existing legislation.

Chairman Darren Werth said: ‘A ban would be unlawful, procedurally unfair, irrational and disproportionate. In any event, it would be impossible to enforce effectively.’

Leading insurance firm Kennedys has also warned the current ban proposal leaves room for exploitation of loopholes.

Head of liability division Richard West said: ‘A law firm could seek to pay to ‘receive’ services in return for receipt of cases. Such firms would therefore receive ‘for free’ the claimant injury cases thus exploiting the current loophole.’