Government bans referral fees in bid to tackle “compensation culture”

The Government has announced that it is to tackle rising insurance costs by introducing a ban on referral fees, as part of its commitment to curbing a compensation culture.

The Government will ban the payment of referral fees in personal injury cases. It suggests the current arrangements have led to high costs, encouraged a compensation culture and led to the growth of an industry which pursues claimants for profit.

Insurance companies inevitably pass the costs they incur through increased compensation claims directly onto motorists and those with other insurance policies, unnecessarily forcing up the cost of living.

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. Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.

“Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life.

“We will ban referral fees and we will go further. We have proposals before Parliament to end the bizarre situation in which people have no stake in the legal costs their cases bring. This will make claimants think harder about whether to sue and give insurance companies and business generally an incentive to pass the savings onto customers through lower prices.”

The Government's proposals currently before Parliament focus on stopping losing defendants having to pay a 'success fee' to reimburse the claimant's lawyer for other unconnected cases he may have lost.

The Government is changing the law so that in future the person making the claim will have to pay the success fee, rather than the defendant, and that fee will be capped. The intended result is a fairer split of costs between parties, and lower legal costs overall which means lower costs to pass on to customers or taxpayers.