One way to avoid referral fee ban - buy a stake in a legal firm to keep it in house!

Car insurance premiums are expected to fall up to 15 per cent this year as the authorities crack down on Britain’s compensation  culture. 

However, it seems that insurers are not ready to let go of their lucrative links to the personal injury claims industry.

Admiral has led the way by setting up a joint venture with a law firm, but many other insurers – including the one behind Tesco’s  car insurance business – are doing the same.

LEADER: Admiral has led the way by setting up a joint venture with a law firm, but many other insurers are doing the same

Insurers and the claims industry became entwined through referral fees in which insurers passed on details of accident victims to lawyers, who then contacted the claimant, offering to sue on their behalf. 

The system gave insurers an extra source of income, but because it added to legal costs and damages – including a boom in whiplash injury claims – it also made car cover more expensive for everyone.

 

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Referral fees are now banned under reforms that became law earlier this month. Experts expect a ten to 15 per cent drop in premiums over the next 12 months as the changes take effect.

 

  

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Simon Douglas, director of AA Insurance, said: ‘The reforms should go some way towards bringing no-win, no-fee type whiplash-injury claims under control and will thus reduce the costs of claims.’

The rules may already be playing a small part in the recent falls in the cost of policies. The AA’s insurance premium index, released last week, showed the average quote for annual comprehensive cover is £746.75 – which is 4.1 per cent lower than at the same time last year.

Admiral, the UK’s second-biggest car insurer, said last week that premiums had fallen by up to ten per cent. Market leader Direct Line will reveal on Friday how much it has been hit when it releases its first-quarter results.

Changes: Car insurance premiums are expected to fall up to 15 per cent this year

But many insurers are now trying to sidestep the ban on referring claimants to lawyers by becoming law firms themselves under separate rule changes that allow people other than lawyers to own and run law firms – known as an Alternative Business Structure (ABS).

The Mail on Sunday revealed in January how Admiral was looking to tie up with a law firm to ensure that it could still refer clients to claims lawyers.

The Solicitors Regulation Authority, the body charged with approving the new law firms, earlier this month rubber-stamped the creation of Admiral Law and BDE Law, two joint ventures between Admiral and law firms Lyons Davidson and Cordner Lewis. Meanwhile, Ageas, the insurance arm of Belgian bank Fortis and which jointly underwrites Tesco’s car insurance policies, has set up a venture with

New Law, a personal injury claims specialist based in Cardiff.

Direct Line has submitted an application for its own legal venture. The SRA has been inundated with such applications. It says it has 104 in the final processing stage and has ploughed cash into speeding up the process.

Hugh Price, a professional negligence lawyer who advises law firms, said the legal reforms would enable insurers to get round the referral fee ban. 

‘The SRA will not approve ABSs which are obviously trying to overcome the referral fee ban, but as the regulatory law firms recognise this, they are able to create ABSs which are compliant,’ he said.

The insurers say the new set-ups are simply to improve the service they offer. Experts say that even if the insurers can grab back some of the income they have lost from the ban on referral fees, the situation that led to bogus insurance claims is being stamped out.

One of the major reforms introduced on April 1 was a scheme to limit the fees paid to lawyers on small compensation claims from about £1,200 to £500 – dramatically reducing the profitability of claims. Price said: ‘The “fat” on claims costs has been significantly reduced, which obviously will affect profit margins.’

Claims lawyers also say whiplash payouts have fallen in the past year.There were 488,281 in Britain in 2012-13 compared with 547,405 in 2011-12, according to figures obtained by the Association for Personal Injury Lawyers through a Freedom of Information request.

The falls in premiums may be  the result of bigger forces too, according to Barrie Cornes, an  analyst at stockbroker Panmure Gordon. ‘The bigger driver is overcapacity. There’s too much competition,’ he said.

After years of underwriting losses, in which claims surged, premiums are almost covering payouts. That is drawing capital into the market and depressing premiums.

The Commons Transport Select Committee is still reviewing the situation and the Lloyd’s Market Association said last week that reforms should be made to the way claims were processed through doctors and lawyers – saying that many of the medical agencies rubber-stamping whiplash claims were themselves owned by personal injury claims lawyers.

It also recommends reducing the time limit for making a whiplash claim.

The MPs will come back with recommendations later this year. If the compensation culture hasn’t already been slain by then, they will hope to deliver the final blow

Source: this is money