Banning referral fees will achieve nothing, warns government adviser

Boleat: solicitors are merely outsourcing part of what they would otherwise have to do themselves

Banning referral fees will have “no effect on legal costs” and instead make something that is “currently reasonably transparent into something totally opaque”, the architect of the claims management regime has warned MPs.

Mark Boleat, a member of the government’s regulatory policy committee and former head of claims management regulation at the Ministry of Justice, said the government should allow the other Jackson reforms to cut “the fat in the system” and so reduce the scope of solicitors to pay acquisition costs, “whether by advertising, paying referral fees or any other means”.

In supplementary written evidence to the transport select committee, which is investigating the cost of motor insurance and has spoken out against the “merry-go-round” of referral fees, Mr Boleat argued that “the chance of someone seeking to make a claim for, say, £4,000 finding a suitable lawyer on their own is very small”.

He added that there is also no guarantee that the business coming directly to a solicitor automatically means the solicitor is acting in the best interests of the client and is independent. “Solicitors are in business to make money, and the extent to which they will make money on particular cases inevitably influences their willingness to take on those cases.”

Mr Boleat, one-time chief executive of the Association of British Insurers, said solicitors need an “effective marketing campaign” to source low-level personal injury cases; relying on an entry on the Association of Personal Injury Lawyers website and in the Yellow Pages “will get very little, if any, business”.

He continued: “By using introducers, solicitors are merely outsourcing part of what they would otherwise have to do themselves. Outsourcing itself does not threaten a solicitor’s ability to act independently, or in the best interests of the client any more than where work is done in-house.

“For example, a small solicitors’ practice wholly reliant on personal injury work is itself vulnerable for this reason. Similarly, solicitors wholly reliant on conveyancing are vulnerable if there is a downturn in the housing market, which may cause them to move into other areas of business in which they are not really competent.”

Mr Boleat predicted that if referral fees are banned, solicitors – individually or collectively – will acquire claims management companies or employ claims farmers directly; solicitors will increase their own marketing spend; and when alternative business structures are introduced, the larger claims management businesses will acquire solicitors.

Further, referral fees would continue to be paid “but suitably disguised” – as he said happened when they were previously banned. “For example, a solicitor would pay for advertising in a car hire business, but the advertising charge would be paid only in those months when a set number of referrals had been made.”


    Readers Comments

  • As usual Mark makes the point the politicians who failed when in office the first time managed to understand! But then again the past timers look to the Daily Mail for inspiration rather then the facts in the matter!

  • Angus says:

    But why does a person looking to make a small claim even need a solicitor? That is the question. Simplify the process – and remove the need for the solicitor.

  • anita says:

    Mark is right.
    Further more it would be worth for goverment to look into the fat directly – Insurance companies themselves who rather charge poor concumer for anything providing nothing in echange. Those sound trading names & brokering firms needs to be looked at as there are maney issues with the way they deal with consumer.
    In adition to that if fraud would be tackled the right way & police would be given more powers, the problem would be solved.

  • Chris says:

    The problem Angus with leaving insurance companies to sort it out without solicitors, if that’s what you imply, is that there can never be a ‘conflict free’ position. They are commercial organisations with obligations to their own policyholders and shareholders and settling claims as cheaply as possible is clearly advantageous to both in the terms of lower premiums and/or increased profits.

    At the moment insurers make a Part 36 offer to settle which is almost always subsequently beaten. It follows then that even with a solicitor involved, and with the potential costs consequences, that their offers generally are still too low – you remove those costs consequences and there is only going to be one direction the offers will be going in and it won’t be upwards!! Believe me I’m no great lover of the legal profession but I cannot see any other way for individuals to have the help they need against megalith insurers who would hold all the cards dealing directly with claimants.

    I’ve been over forty years in this business, on both sides of the fence, and believe me a leopard will never change its spots!!

  • The issue with banning referral fees is the same as any other business, it is – restricting a persons individual right to trade in an open market.
    A ban on referral fees existed pre-2004, against the wishes of the Law Society that ban was lifted becasue of The Department of Trade and Industrys objection to what amounted to a cartell by solicitors.
    Most solicitors are against referral fees for passing of clients as it often means clients are ‘sold’ to the highest bidder as opposed to seeking the best legal representation, but the reality is, any proposed ban flies in the face of basic trade rules that the Department of Trade and Industry was set up to protect.
    Referral fees may be distasteful, but at the moment there is at least some protection for the general public in that accident managemnt companies and the like are regulated by the Ministry of Justice – anything different leaves the system open to abuse and thus potentially little protection for the individual consumer.
    Savas Argirou
    Managing Director of
    Savas and Savage solicitors

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