MPs tell insurers to improve referral fee transparency or face government action

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By Legal Futures

11 March 2011

Motor insurance: policyholders need to know who is being paid what, says committee

MPs today called on insurers to be much more transparent with policyholders about the “merry-go-round” of referral fees in their motor business – and for the government to step in if the industry fails to take action by the end of next year.

In a report on the cost of motor insurance, the transport select committee recommended that the Legal Services Board’s proposals on referral fees “should form the basis for a transparency regime throughout the motor insurance market”.

It highlighted “the merry-go-round of referral payments made to or by insurance and law firms, rescue truck drivers, vehicle repairers, credit hire firms, claims or accident management companies and medical experts”.

The committee said insurers should publish on their websites a list of the firms with which they have referral arrangements, an indication of the level of the fees paid, and a clear explanation of how referral arrangements work and their purpose. Policyholders should be sent this information with their insurance documents. When claims are made, insurers should make it clear to claimants that they need not use the solicitor, vehicle repairer or credit hire firm which is recommended by the insurer.

Committee chairwoman Louise Ellman said: “Consumers are largely unaware of how much money moves around the insurance industry in this way when they make a claim. They deserve to see where their money is going. If insurance companies cannot agree a method by which to improve transparency around referral fees, then the government should step in, with legislation if necessary.”

The committee said it expected the insurance industry to implement a more transparent regime for referral fees by the end of 2012 or face government intervention. “We suspect consumers are often confused about why their insurer insists that they use a specific vehicle repairer or solicitor and about whether they are entitled to make their own choice,” it added.

Greater transparency would make the market “less ‘dysfunctional’”, the report suggested, calling on transport minister Mike Penning to “press the case” for reform of referral fees with the Ministry of Justice.

The committee heard from a range of interested parties, including the Association of Personal Injury Lawyers, the Motor Accident Solicitors Society and the Claims Standards Council.

While welcoming wider access to justice enabled by conditional fee agreements and claims management companies, the MPs said this has “come at a cost”. The report also dealt with issues such as uninsured driving, fraud and young drivers in pushing up premiums.

The MPs said the government should also consider whether lessons could be learnt from other countries in pursuing “bolder reform” of the system for dealing with personal injury claims, such as having a ‘no fault’ process whereby each party claims against their own insurer for their own losses, irrespective of who was responsible for the accident.

They said: “Although we accept the minister’s point that not all of these changes will be applicable to the UK, because of differing legal regimes, we would be surprised if the UK had nothing to learn from international experience. We recommend that the Department [for Transport] sponsor a research project on international experience in restraining the number of personal injury claims relating to motor insurance, with the aim of publishing a discussion paper on this issue during 2012 outlining possible options for change.”

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