'No time for referral fee scapegoats'

At last! The industry has known for years that referral fees are a disgrace and the consumer is paying for a broken system. Now, thanks to Jack Straw, the rest of the country has finally woken up to it.

But hang on a minute … they’re blaming insurers? Fair enough, insurers have been making money from referral fees, but they’ve been spending a heck of a lot more. They have also been campaigning, almost to a man, for the very ban that Straw is now calling for.

His intervention is good news – it means something will probably happen. But the industry has had to take a public dressing down to get here, not to mention years of heavy losses.

While far from the only culprits, insurers have undoubtedly been complicit in the system. They argue that they have to take referral fees to offset the cost of claims arising from referral fees. That’s not just a vicious circle, it’s a rabid one. But there are many, many other points in the circle. Brokers are just one other party profiting from referral fees, not to mention lawyers, public authorities, and of course the key culprits: claims management companies.

Now the industry has the public attention, it needs to change the dialogue. It’s a systemic problem and it’s going to take government action to resolve (so let’s start with the Jackson Review). In the meantime, individual insurers can put their money where their mouths are. AXA’s decision to stop taking referral fees will not solve the problem, but it will put pressure on the government to act. It would be refreshing to see other insurers follow suit.

Insurers should also ask: why didn’t Straw know about this disgraceful state of affairs when he was justice minister? Insurers certainly did. The industry has been talking about this for years, but clearly the message has not been getting through. It’s time for a long hard look at the effectiveness of the ABI as a lobbying machine.