Insurers and brokers lift lid on referral income

A clutch of brokers and insurers broke ranks this week to reveal how much they earn from referral fees.

The revelations will put pressure on those insurers and brokers that are not disclosing fee incomes.

Allianz led the way for the insurers, revealing its referral fee income was £1.5m last year, less than 1% of operating profit.

Markerstudy said that it made £200,000 from referral fee income on schemes with brokers, although the sum was returned to brokers. The figure is similar to Groupama’s, which said it made just £150,000 from referrals last year, or 0.05% of turnover.

Referrals are such a small part of insurers’ income that the government’s proposed ban is unlikely to push up rates. It will have a more substantial effect on direct-only insurers, or those with a strong direct presence.

Aviva, Zurich, LV= and RSA all declined to reveal their referral fee income when asked by Insurance Times.

Admiral has admitted referrals make up 6% of profits. Chief executive Henry Engelhardt said: “If the government wants to tackle this, it needs to set a cap for injuries such as whiplash at, say, £750 and £150 to lawyers. At the moment, victims can get £2,000. If fees are banned, the result would be car insurance going up.”

This week broker Brightside revealed that it makes £60,000-£120,000 from referrals. The figure represents 1%-2% of revenues from its medical reporting segment. BGL, Swinton and Kwik-Fit all refused to disclose fees.

Brightside chief executive Arron Banks said the ban was “immaterial” as companies would acquire law firms when new ownership rules come into force at year-end. Referrals could then be passed on by insurers or claims companies, who would simply get a share of the profits. Banks said: “Then the question of referral fees is immaterial because it is internalised.”

The referrals ban also took a fresh political twist after it emerged that justice minister Jonathan Djanogly faces questions over reports that he stands to gain financially from changes to the ‘no win, no fee’ system he is piloting through parliament.

According to the House of Commons register of members’ interests, Djanogly is a minority partner in Lloyd’s member The Djanogly Family Limited Liability Partnership.

Labour shadow justice minister Andy Slaughter said Djanogly might benefit from the reforms, but Djanogly dismissed it by saying his interests were “public record”.