Big Brother Watch has previously brought up the topic of insurance companies selling on referral data to no-win no-fee claim firms, which has now received widespread attention after being picked up by the media following an interview on the Today programme by Jack Straw. I personally received a text message a few weeks ago inviting me to claim “up to £3,450” after my “recent accident”.
This was news to me, considering I hadn’t been in an accident and my car was parked on the driveway undamaged. The logic of referring the contact details of people who have been in a crash makes sense despite it being morally destitute, although how they intended on securing me a payout without so much as a bump occurring seems very peculiar.
The system is fiendishly simple yet ludicrously expensive, creating a vicious circle which is making insurance ever more expensive. After a collision or a bump, a motorist must contact their insurer to inform them of the incident and detail any damage to the vehicle.
The insurer then passes on the contact details of the claimant, irrespective of whether any injury has occurred, to a no win, no fee firm, in return for a ‘referral fee’. This fee can be anything from £200 to £1,000 per case, giving a huge incentive for companies to pass on the information. Jack Straw has called for the banning of these fees to halt the rapid rise in premiums.
This system has led to spiralling insurance costs for everyone in the country. The multitude of comparison sites, deals and discounts only serve to confuse customers and disguise the rising cost of insurance. The statistics are truly shocking. The number of claims companies has doubled to 3,400 over the course of just two years, while the total cost of personal injury claims has doubled to £14 billion in ten years. This is at a time when cars are the safest they’ve ever been, vehicle crime has dropped and there are around 30% less accidents than in the late 1990s. Yet premiums still rocketed by 40% from 2009 to 2010.
Apart from the scandal of artificially high premiums supported by these dodgy practices, the passing on of personal contact details without your express permission needs to stop. We have received numerous calls from concerned people who have been bombarded with unsolicited calls and text messages at all hours of the day and night. This is a gross intrusion on privacy, especially considering it is purely for the financial gain of the claims firms, who have no real interest or consideration for the wellbeing of those in accidents.
When questioned on whether he thought it was morally acceptable behaviour, Nick Starling of the Association of British Insurers attempted to excuse it by claiming a variety of groups are doing it including the police, breakdown firms and garages as well as insurers. Basically, “We’re all at it”, despite the fact that whiplash cases cost insurance companies a shocking £2 billion.
Clearly the majority of this is suspicious, as the total cost of whiplash treatment to the NHS is £8 million, while it is notoriously difficult to diagnose. It seems odd that the insurance companies, ostensibly losing money as a result of these claims, have not campaigned and lobbied harder for the referral fees to be banned.
Law Society president Linda Lee said:
"Referral fees hinder access to justice, contribute to rising costs in the justice system, and go against the interests of the consumer. We have always argued for a total ban on referral fees. Jack Straw believes they should be banned, Lord Justice Jackson in his recent report on costs believes they should be banned, and now even the insurance industry agrees they should be banned. The government needs to wake up and take immediate action."
This morning Justive minister Jonathan Djanogly criticised the payment of referral fees, but refused to guarantee the government would ban them. It is possible that the police use them to top up their finances, creating a disincentive to banning them. These forms of behaviour from insurers as well as the police need to stop; the government should reconsider banning referral fees outright.
UPDATE: Axa have announced this afternoon they will no longer accept referral fees in personal injury claims. Hopefully they will be the first of many.
Frank Manning tweets at @BillyManning