Claims roundtable: '‘We all want genuine cases to go through'

The practice of referral fees is fundamentally wrong, a leading insurance legal expert has said.

Speaking at the recent Insurance Times claims roundtable in the Don Restaurant in London, Beachcroft head of strategic litigation Andrew Parker said that a final decision on referral fees was required.

“I don’t sense an immediate political answer on referral fees and the sort of language we hear from the Ministry of Justice is along the lines of ‘It will sort itself out. We’ll sort the costs and it [referral fees] will sort itself out’,” he said.

Lord Jackson recommended a ban on referral fees or alternatively a cap of £200 in his review on civil litigation costs. The government decided not to include the question on referral fees in its consultation on the Jackson reforms and is awaiting a report from the Legal Services Commission on the subject.

Parker, who was an assessor for Lord Justice Jackson’s review of civil litigation costs, believed that it was unlikely there would be a clamp down on the practice. “There is a Legal Services Board consultation outstanding. That closed at the end of December. The Legal Services Board did say going into that consultation that they saw nothing wrong in principle with referral fees. So you kind of get a flavour as to what their stance will be.”

The board needed to speed up producing its final conclusion, he added. “It is now three or four months on and they still haven’t delivered the output and they really need to get on with that,” he warned.

He added that the practice of referral fees was fundamentally wrong. “I just think it should be outlawed completely. The legal and broking professions should have high standards. They do have high written standards. But they aren’t always applied strictly universally. But I would have thought one thing we could agree on is that payments to potential customers are fundamentally wrong.”

Minster Law Solicitors director of legal services Craig Underwood said that it was unlikely that referral fees would be banned. “A referral fee is a form of marketing cost, as far as I’m concerned. Acquisition of clients has to be met by someone, whether it’s by champagne dinners or by paying a fixed sum,” he said.

A potential ban on referral fees would have a major impact on brokers in the motor market, argued brokerage Stackhouse Poland head of claims Brian Knapp. “I think the biggest potential impact is the removal of referral fees because that has become a supplementary income source for brokers in the motor market,” he said.