Personal injury lawyers are never, in this day and age, far from scrutiny and this week a meeting of the House of Commons Transport Select Committee brought several issues to the fore.
The committee met in Westminster last Tuesday with aim of discovering why motor insurance premiums have rocketed by 40% in the last year. The government pointed their fingers at the insurance companies themselves. They, in turn, shrugged off the blame and loaded it on to the shoulders of the personal injury industry, who they claim hike up costs.
Among the many points debated, the most prominent one was that of the dreaded ‘referral fees.’ I say ‘dreaded’ because that seems to be the attitude of everybody except those involved in the PI industry.
‘Referral fee’ has become a dirty word, or a dirty phrase. But it is interesting to note the levels of bile and vitriol aimed at the concept by those who apparently have no concrete idea of what it is and how it actually works. So let’s have a look at it.
A referral fee, in the context of a personal injury company, is very simple. It is a fee paid by a lawyer to a third party in exchange for that third party finding him or her clients. It is as simple as that. How this differs from an insurance company paying ComparetheMarket.com to direct potential policy-buyers to them is not quite clear.
Any claims company is regulated, by law, by the Ministry of Justice. They cannot use immoral or underhand tactics to force people to claim compensation, and by the same token cannot magically create a claim out of thin air. All the horror stories about lawyers visiting people in hospital beds or putting flyers under the windscreen wipers of smashed cars at accident scenes are hokum. All claims companies do is find customers for the lawyers. The lawyers pay them for this service. If they weren’t paying referral fees they’d be paying the Yellow Pages to take out a two-page advert on their behalf. The same principle, but under the moniker of ‘marketing costs.’
Since 1999, when legal aid was withdrawn for personal injury claimants, there has been a huge growth in claims companies such as Accident Advice Helpline. This is because the government no longer invests money in advertising to tell members of the public what to do if they’ve been sufficiently seriously injured to merit compensation. So it’s been left to private companies to inform such people instead.
Insurers seem to love kicking claims companies for making money from something that is people’s legal right. But the reason that these same people have the right to claim compensation and to have their vehicle repaired if a negligent driver slams into them is because all drivers are obliged to carry insurance to protect any third parties they might injure or inconvenience.
And yet insurance companies make (or at least made) vast amounts of money on the back of it. So what are they complaining about?
*Worth making the point that lawyers also use us because we are a more efficient marketing tool than paying for expensive advertising. We exist and have done so for so long because the lawyers recognise that we are a cheaper source of business for them.
If they were left to advertise only in the Yellow Pages etc, their costs would go up. They could pay a fee upfront and in theory find that they have no customers anyway, which will not happen with us, and in addition they would then have to charge even more to offset the costs they have incurred.
Date Published: January 19, 2011
Author: David Brown