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June 1, 2011

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Referral fees a “thorn” to compensation-costs reforms, warn insurers

A decision by the regulatory body for legal services in England and Wales not to ban the practice of referral fees in personal-injury cases has been described by insurers as a “missed opportunity”.

Referral fees – where lawyers pay intermediaries such as insurance firms and claims-management companies for directing them to personal-injury claimants – are a controversial feature of the legal services sector. In his report on legal costs in January last year, Sir Rupert Jackson described it as “offensive, and wrong in principle, for personal-injury claimants to be treated as a commodity”. There is also a concern that claimants are directed to the lawyer best able to pay for them, rather than the best lawyer to serve their interest.
A counter-argument in support of referral fees describes them as a legitimate client-acquisition cost. Advocates of the arrangements point out that lawyers have not always been effective in marketing their services, resulting in some claimants being left unserved. Claims-management companies and insurance companies have therefore helped to correct this shortage in the market and helped genuine claimants gain access to justice.

In September last year, the LSB consulted on recommendations to manage the impact of referral fees and prevent abuses by strengthening transparency obligations, rather than seeking a simple ban on the arrangements. In a report issued on 27 May, the Board endorsed the proposal and has issued guidance requiring approved regulators to make sure that consumers know when referral fees are in operation and to whom they are being paid.

Explaining how it came to its decision, David Edmonds, chair of the LSB, said: “Before this exercise, the debate on referral fees was characterised by high passions but a lack of hard evidence. Following this detailed investigation, we are persuaded that the interests of consumers are best served by continuing to permit referral fees, but managing their impact through shining the light of transparency on them. 

“We have set out a range of measures that can help achieve this – with the approved regulators free to choose what is best suited to their part of the market. While they will have the flexibility to tailor action, securing these outcomes is essential and we will track progress carefully over the coming months.”

However, the Association of British Insurers (ABI) described the Board’s report as a “missed opportunity”.

Said its director of general insurance and health, Nick Starling: “Making referral fees more transparent, as the report recommends, will not stem the growth in the compensation culture, or frivolous and exaggerated claims, which the practice encourages. This is why they should be banned.

“The Government’s much-needed proposals for civil justice to bring about a simpler, speedier and cost-effective compensation system for genuine claimants will only succeed if referral fees are banned. Insurers now look towards Parliament to take the necessary steps and ensure a full ban, which is the only way to protect consumers.”

Research commissioned by the Access to Justice Action Group (AJAG) and the Association of Personal Injury Lawyers (APIL) – published in the same week as the LSB’s report – found that 80 per cent of those who used ‘no win no fee’ are satisfied with the current system, and that most cases were not substantial in value.

AJAG coordinator, Andrew Dismore, said the Government’s reforms to tackle ‘no-win no-fee’ – based on Lord Justice Jackson’s proposals – “will save millions of pounds at the expense of ordinary people who have been hurt on the roads, or at work. The Government’s plans are draconian and will end access to justice for the less well-off. The system we have now works well and has huge satisfaction rates from those who use it.” 

A separate report by market analyst Datamonitor suggests that the reforms will also have a negligible impact on the costs faced by the personal-injury insurance industry, which are estimated to rise from £8.4bn last year to £9.7bn in 2014.

Approaches to managing the risks associated Musculoskeletal disorders

In this episode of the Safety & Health Podcast, we hear from Matt Birtles, Principal Ergonomics Consultant at HSE’s Science and Research Centre, about the different approaches to managing the risks associated with Musculoskeletal disorders.

Matt, an ergonomics and human factors expert, shares his thoughts on why MSDs are important, the various prevalent rates across the UK, what you can do within your own organisation and the Risk Management process surrounding MSD’s.

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