Personal injury claim referral fees are to be banned by the government, in a bid to tackle rising insurance costs.
Justice Minister Jonathan Djanogly said that the current no-win, no-fee system was a sympton of the “compensation culture problem”.
“Middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices,” he said.
Many of the claims made are contrived, he said, and only get through the courts because the current system allows too many people to profit from minor accidents and incidents.
“We have proposals before Parliament to end the bizarre situation in which people have no stake in the legal costs their cases bring. This will make claimants think harder about whether to sue and give insurance companies and business generally an incentive to pass the savings on to customers through lower prices.”
Insurance companies have been criticised for passing customers’ details on to claims firms, in return for high referral fees. Currently, if successful, lawyers can claim the cost of those referral fees from the defendant or the insurance company.
The number of personal injury claims rose by 72 per cent between 2002 and 2010, which the government says resulted in higher costs for consumers, local authorities and the NHS.
The new policy on personal injury claims followed news that the cost of motor insurance will be examined by the Office of Fair Trading, after a 40 per cent increase in premiums in the 12 months to May.
The Association of British Insurers (ABI) welcomed the news of the OFT investigation and called for a complete overhaul of the claims system. The consortium says that compensation laws in the UK have led to higher insurance premiums for UK consumers, who they say pay £2.7m a day to claimant lawyers through motor insurance premiums.
Otto Thoresen, ABI’s director general, said that although people can often get money more quickly if they claim directly from insurers, “ambulance-chasing lawyers can still manipulate the system”.
“Compensators such as insurers, retailers and local authorities, are committed to paying genuine claimants as quickly as possible,” he said, “but too often this happens despite the system, not because of it.”