The Government has announced it is going to ban the controversial fees paid by certain personal injury solicitors to insurance companies for the details of their customers who have been involved in road traffic accidents.
Motorist groups, such as the AA, and the Association of British Insurers (ABI) welcome the decision as they say the referral fee system has contributed to the significant increase in motor insurance premiums.
The referral fees, which are paid not only to insurance companies but hospitals, ambulance drivers and garages as well, can average £800 per claim.
By contacting and encouraging people who have been involved in an accident to make a claim, the solicitors in question are accused by the Government of encouraging the 'compensation culture' within the UK. Justice Minister Jonathan Djanogly said the "spurious" claims made by many claimants could "only happen because the current system allows too many people to profit from minor accidents and incidents."
The more personal injury claims that are made against insurance companies, the more those insurance companies will have to pay out in compensation. Because of the risk of paying the claimant's success fee if they lose, many insurance companies will settle rather than defend the claim. This encourages more people to 'have a go' at claiming compensation, according to the Government.
Therefore the Government is also proposing changing the way that success fees are paid. Instead of being payable by the losing defendant, they will be payable by the successful claimant out of their awarded compensation. The amount a solicitor can charge as a success fee will be capped to ensure the claimant has some of their compensation left.
The ban on referral fees will need to be "watertight" in order to effective said the Director General of the ABI.
Richard Lloyd, the Executive Director of Which?, said: "This is great news for motorists. Referral fees feed the growing compensation culture that has been pushing up insurance premiums at a time when many families are already feeling the pinch. It is absolutely right to ban them, and quickly."
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