It's unlikely to achieve the government’s objective of reducing motor insurance premiums and instead may make it more difficult for individuals who have experienced a genuine injury and who are entitled to be compensated to make a claim
(PRWEB UK) 3 September 2012
The current government undertook a major project of civil litigation and costs reform and appeared satisfied, especially following research commissioned by the Legal Services Board that suggested no consumer detriment from personal injury claims referral fees and that they did not also need to get involved in regulating referral fees in this sector.
There followed a frenzy of media attention over the rise in motor insurance premiums and the government announced in September 2011 that, in an effort to reverse this premium rise, it would prohibit referral fees for personal injury claims after all.
According to Stuart Kightley, partner and head of Personal Injury at Osbornes Solicitors LLP: ‘This was always a dubious claim, given that the legal fees in motor claims are fixed by reference to historical costs data and without any reference to referral fees: referral fees are found out of existing fixed fees rather than being allowed to drive fees up.’
A clause was introduced into the Legal Aid, Sentencing and Punishment of Offenders Act (LASPO) to provide for the prohibition from April 2013. The wording of the clauses were tightly drawn so that the ban would capture all payments, in whatever form, made in exchange for providing the identity of a potential claimant. The only potential exceptions were reasonable hospitality and where ‘services’ were provided in exchange for the referral fee but only if the regulator in its discretion chose to activate the relevant clause.
This allowed lawyers marketing consortia, which make up a significant proportion of the market, to hope for an exemption from the ban, and indeed the government appeared to publically support their cause, although it left the detail to the regulator. All eyes then turned to the nominated regulator, the Solicitors Regulation Authority (SRA).
In June 2012, the SRA published a Discussion Paper on these issues. Personal injury solicitor, Stuart Kightley, comments that this paper ‘disappointed those hoping for clear guidance’ and goes on to say that ‘it would need to positively exercise a power under the Act in order to exempt ‘services’ for the lawyers’ marketing groups but, far from taking that proactive step, it talked in woolly terms of ‘mandatory outcomes’ and ‘non-mandatory indicative behaviours’. It was clearly concerned that if it allowed solicitors’ marketing groups special treatment then that would also allow any claims management company to modify their business model to “get round” the ban, defeating its very purpose.’
The SRA also indicated that businesses may find a way around the ban on referral fees by forming Alternative Business Structures (ABSs), as allowed by the 2007 Legal Services Act.
Further guidance is awaited from the SRA but Claimant lawyers can expect to see a total ban on the referral fees they currently pay unless they form an ABS with their referrer or they risk another model that seeks to work around the wording of the ban.
Kightley goes on to say: ‘Where this will leave us after 2013 is a further reduction in legal fees for Claimant personal injury claims work. The government is in the process of assessing how great the reduction will be and the current concern is that it will be carried out without proper thought, research or data, leaving claims underfunded and threatening access to justice for injured people.
The ban on referral fees is unlikely to achieve the government’s objective of reducing motor insurance premiums and instead may make it more difficult for individuals who have experienced a genuine injury and who are entitled to be compensated to make a claim.’
Osbornes Solicitors LLP is a limited liability partnership, registered in England and Wales (registered number OC357803) which is regulated by the Solicitors Regulation Authority. They specialise in Family Law (including international adoption and child abduction), Property Law, Property Litigation, Social Welfare, Wills, Probate & Disputed Estates and Personal Injury.
Osbornes Solicitors LLP
9 Pratt Street
London NW1 0AE
Tel: 020 7485 8811
Fax: 020 7485 5660