Information watchdog to investigate ‘insurance racket’
The UK’s information watchdog is to investigate whether motor insurers who sell clients’ details to personal injury lawyers are breaching data protection law.
Earlier former Justice Secretary Jack Straw called for a change in the law to stop the “insurance racket”.
A spokesman for the Information Commissioner’s Office (ICO) told Channel 4 News that it is investigating motor insurance referrals after complaints, including from Mr Straw, the Labour MP for Blackburn. Mr Straw says that the practice was a key reason for the spiralling cost of insurance, due to increasing numbers of personal injury claims.
The cost of personal injury claims had doubled to £14bn in 10 years, according to Mr Straw. But in 2009 the number of accidents in which someone was hurt was 31 per cent lower than the average for 1994 to 1998.
Some insurance companies are making money by passing on to law firms the details of customers who have been involved in an accident. The law firms who pay a referral fee to the insurer, can contact the person who has had an accident, often encouraging them to claim compensation on a “no win no fee” basis.
Although passing on customers’ details to third parties such as lawyers is not illegal, the ICO can fine an organisation up to £500,000 for a serious breach of the Data Protection Act which causes “distress” and “substantial damage” to the customer.
Data protection guidelines
Companies should be clear about how they will use customers’ third party information, and which third parties the information will be passed to, the ICO advises.
Despite being involved in the practice, UK insurers say they have been calling on the government to make referral fees illegal.
A spokesman for the Association of British Insurers (ABI) says: “Jack Straw is banging at an open door concerning referral fees. We have called for referral fees to be banned for months as part of reforms to streamline the claims process.”
The ABI has discussed the issue with its members but does not have the power to outlaw referrals or take sanctions against members found to be selling customer data.
The spokesman says that sale of customers’ insurance information is widespread, but says that not all insurers do it, and other parties such as claims management companies are also involved.
The Ministry of Justice says it is considering recommendations from the Legal Services Board on how to reforming referral fees, adding in a statement that referral fees are “only a small part” of the no win no fee system it wants to reform.
How drivers can avoid their data being sold
Drivers can reduce the likelihood of their details being passed to a lawyer by checking the small print in the contract for information about how their insurer uses customers’ information.
It is good practice for companies to include a tick-box in their contract, asking customers’ consent for their details to be passed to third parties. But according to James Daley, money editor of Which?, the consumers association magazine, some insurers’ contracts assume that customers are happy for their data to be shared with third parties – and need to write to the insurers to request that their information is not shared.
Mr Straw was alerted to the problem of motor referrals by constituent Phil Riley, who was “bombarded with texts and personal calls” following a minor “fender bender” in which he suffered no injury. Mr Riley was outraged when a claims management company suggested that he should claim compensation for whiplash.
The cost of treating whiplash to the NHS is £8m, but the cost of whiplash related claims to the insurance industry is £2bn, Mr Straw says.
Mr Straw wants better regulation of claims companies and their sales techniques. He also wants referral fees to be banned.
