What is a referral fee?

A referral fee is essentially a 'commission' charged by an insurer and others to a solicitor to represent a personal injury claim.

Typically, these fees are also tied up with exclusivity arrangements between insurers, solicitors and other service providers, which potentially restrict an individual's right to select their own legal representation, medico-legal services and car-hire company for instance.

Why do referral fees even matter?

We believe that selling personal injury cases to solicitors introduces detrimental commercial incentives into the marketplace, can encourage fraudulent claims and fundamentally is not in the interest of injured persons. Anything that potentially damages independent advice or is not in the best interest of the injured person is something we stand against.

How long has this been going on?

Referral fees became 'legal' in 2004, and have proliferated ever since then. Since that time, they have become the standard way of securing personal injury instructions.

How are referral fees getting banned?

A ban on referral fees has been included as part of the Legal Aid, Sentencing & Punishment of Offenders Act, which received Royal Assent on 1 May 2012. However, this ban does not come into effect until April 2013, leaving many months for this practice to continue.

The auctioning of injured people's cases? Does this actually take place?

Yes, it does. Sadly, this practice has become commonplace within the industry, particularly for 'high-value' cases or for large batches of personal injury claims.

How can an insurance company own a law firm?

The Legal Services Act of 2007 has introduced alternative business structures (ABSs) for law firms – essentially where outside companies or individuals who are not lawyers can own a law firm.

It would allow any type of organisation ranging from a High Street retailer to a major insurance company to own and operate a law firm.

The first licenses for ABSs have already been issued, all to personal injury law firms, and hundreds more are expected over the next year.

For more information, please see the information available from the Solicitors Regulation Authority.

Why is Insurance Company ownership a bad thing?

Fundamentally, the personal injury system is supposed to have 'checks and balances', with proper independent advice and representation for claimants by solicitors as a vital part of the mix. When an insurance company owns a law firm, this independence is at risk.

Furthermore, there will be an increased commercial incentive for these firms to pursue more and more cases – potentially increasing fraudulent claims and consequently pushing up the cost of your motor insurance premiums.

What should I do?

The easiest and most important things you can do are to:

• Let your friends, family and colleagues know this is going on; and
Ask your insurer about their participation in these shoddy practices, and ask how soon they plan to stop doing so.

To stay up to date with the latest news regarding referral fees and other Personal injury news please visit the Spencers Solicitors website.

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