Personal Injury Referral-fee Ban

The personal injury referral-fee ban will go into effect in April; according to the government it will stop Britain becoming a “compensation culture”, however others do not agree and believe that claims referral firms will find another way to work, complying with the regulation.

The referral ban was announced last September to stop claims management companies, insurance firms and trade unions from charging solicitors fees for leads as it was leading to high insurance premiums.

Richard Collins, executive director at the SRA said: “We will do everything we can to make the ban effective in terms of stopping the payment of referral fees in these cases but I think the bigger question will be whether actually enforcing that ban properly, as we will aim to do, will actually have the wider social impact the government may be looking for.”

The Solicitors Regulation Authority (SRA) does not believe that the regulation will stop the issue. The claims management system has rocketed since the start of the legislation in 2004 leading to an increase in the cost of personal injury claims, which has doubled to 14 billion in 10 years.

The referral ban is to stop the payment and receipt of referral fees in all personal injury cases due to concerns over the minor injury claims, which has led to motor insurance premiums rising.

The personal injury industry is worth around 1.8 billion so the injury firms will try to operate under the legislation by any means possible. Many firms provide other services such as marketing and advertising so could put the referral under another name.

The SRA said referral firms might also form “Alternative Business Structures” (ABSs). Meaning that a claims management company may merge with a solicitors’ firm. Therefore, there would be no need for a referral fee.

The ABSs would then do the job of two separate companies so there would be no need for a referral fee, with many companies already taking this route. For the solicitors who have not already adapted their practice, they will adapt quickly when the ban commences, making sure they adhere to the new rules. Therefore the statuary ban will not achieve what the government wants to do, it will just encourage firms to find an alternative way of complying.