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Ban on Referral Fees

Many people know that come April 2013 there will be a ban on referral fees.

At the moment there a hundreds of Claims Management Companies (CMC’s). They advertise morning noon and night “Make a claim, make a claim, make a claim !!!” The media hype has increased public awareness of the claims process and created the “compensation culture” we now live in. I believe it was David Cameron – our own Prime Minister who called the UK “the whiplash centre of Europe”.

With the increase in claims, insurance premiums have risen and risen. Each year the number of claims being made for personal injury and other losses are on an upward spiral.

In response the Government has stepped in and will now as of April 2013 ban referral fees. This means that CMC’s can take on through the media as many claims as they like – they can advertise and flog the claims process to their heart’s content – but they can not sell the claims. At the moment, all the claims they “capture” are sold to firms of Solicitors. If you, as a Solicitor want to cash in on the work – you have to be the highest bidder !

It doesn’t stop there. Once the Solicitor gets the claim there are other “spin-offs”. A legal expense insurance policy has to be taken out to protect the Claimant from any adverse costs order. Guess what – legal expense insurance company’s are paying referral fees if you take out one of their policys. A medical report needs to be prepared to base the claim upon. Again, medical agencies employed in this field will pay a referral fee if you refer the claim to them.

The “cost” of bringing a claim therefore goes up and up as the referral fees get bigger and bigger in order to entice the Claimant. The ban on referral fees must therefore be a good thing from this point of view.

But how will this change things for the Claimant ?

More recently CMC’s have been able to set up what is known as an alternate business structure (ABS) with Solicitors. So, instead of “referring” the claims to Solicitors for a fee they have set up in effect their “in house” firm of solicitors and simply share the profits between them.

In April with the complete ban in place there will undoubtedly be more and more of these ABS structures. The worry is that these “structures” are going to be put in place at the last minute. They will be poorly structured, poorly run, and based on a shoe-string budget. The CMC’s are not lawyers. They may be excellent at marketing themselves and bringing the claims in, but are they lawyers ? No. Can they ensure that the people doing the work they capture are properly qualified, experienced and can deliver the same professional service that the successful lawyers who albeit are currently paying “top dollar” for the referral of the business are currently providing ? I doubt it.

I think that on the whole Claimants in the ‘New World’ will receive a less favourable service through a CMC. I think more and more Claimants will revert to their High Street practice and we may well see the end of the CMC.

This page © Copyright 2012, Vashti Norman Solicitor, Mediator and Notary Public.