Simon Read: Referral fees ban will curb the compensation culture

Banning referral fees in personal injury cases will hit ambulance chasing lawyers and unscrupulous insurers alike.

The practice of selling the details of people who have been in an accident is pernicious. It doesn't help the victims and only serves to benefit the legions of annoying no-win, no-fee claims companies and insurers - which line their pockets from the fat fees they get paid for passing on your personal details.

The big benefit that will surely follow from the Ministry of Justice's announcement yesterday that it will ban referral fees is that the unpleasant compensation culture that has been growing will be hit. If the ambulance chasers can't simply pay for details of peoplewho have been in an accident, they won't find it so easy to sign up clients from whom they can make handsome profits.

With the Office of Fair Trading announcing an investigation on Thursday into the car insurance industry's soaring premiums, the ban can't come soon enough. Insurers partly blame the massive hikes in premium pricing on the huge increase in personal injury claims. The fact that they've contributed to the practice by flogging customers details, notwithstanding, most insurers willwelcome the ban. In fact some want the Ministry of Justice to go further.

Paul Evans, boss of AXA UK, says that referral fees are the tip of the iceberg. "As referral fees are directly related to the amount of money lawyers are paid, we also need to see a significant reduction in the fixed fees paid through the Ministry of Justice process. If these fees are not reduced, the ban on referral fees will have no impact on motor insurance premiums."

Reducing the fixed fees would eliminate the huge profit margins lawyers can make from minor injury claims. It's these easy money- making deals that encourage the compensation culture, Evans contends.

Announcing the ban, Justice Minister Jonathan Djanogly said: "The no-win, no-fee system is pushing us into a compensation culture in which middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices. Honest motorists are seeing their premiums hiked up as insurance companies cover the increasing costs of more and more compensation claims."

He points out that many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents. What the ban won't do is stop the endless speculative texts of the "been in an accident? You could claim thousands!" variety. But that's down to you. Just delete the texts. If we all follow suit, they will soon disappear.

PRICE COMPARISON sites were partly blamed by insurers this week for the rise in premiums. The AA said that intense competition between insurers fuelled by price comparison sites kept premiums low while the actual cost of providing cover surged on the back of the growth in personal injury claims and fraud.

The firm said that by 2009 insurers were paying out £123 in claims for every £100 taken in premiums. That is clearly an unsustainable business model so, if you believe insurers, the cost of cover had to soar. In fact it then climbed by 40 per cent in the 12 months to March this year.

But as well as insurers getting fed up with comparison sites so, it seems, are consumers. A study published today shows that despite price comparison sites' money-saving claims, half of consumers think the sites don't offer the best deals in the market. In fact nine out of 10 consumers don't trust comparison sites to pick up all the offers that would suit their needs, according to the research by the collective buying site

You should bear in mind that the company offers an alternative way to get deals on insurance, which means taking its study with a large dose of salt. But there does seem to be growing discontent with comparison sites. With the major insurers - such as Direct Line and Aviva - still noticeably absent from them, they really can't claim to offer deals from across the market. Worse, in my experience, is the seemingly growing practice of pushing to the top of their lists companies which pay more for the privilege of being top, rather than because they may offer better deals.

I'm not ready to write off comparison sites yet as they can still offer a quick way to get a flavour ofwhat may be available, whether you're seeking car insurance, energy deals, or the countless other financial arrangements where price is an issue.

But the only way to find the best deal is to shop around several comparison sites, as well as contacting suppliers directly. It may seem like too much hard work, but that extra bit of shopping will, hopefully, yield decent savings.

COMPLAINTS to financial firms soared 54 per cent in the first six months of the year. While the bulk of them related to mis-sold payment protection insurance, the figures still are a shameful reminder of just how poorly we've been treated by our banks and insurers. They must do better!

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