Insurers claim referral fees push lawyers’ costs out of control
Thursday 02 July 2009 by Neil Rose
Solicitors have hit out at a report claiming the market in personal injury claims is failing because legal fees are out of control.
Arguing that fees could be reduced without restricting access to justice, a study commissioned by the Association of British Insurers (ABI) said there were insufficient market constraints, because the use of ‘no win, no fee’ agreements means clients have no role in influencing the level of solicitors’ costs.
Even when solicitors reduce their costs through efficiency, larger referral fees simply fill the gap, it said, with the average fee of £600 in 2007 now £1,000 in some cases.
The study by Oxera Consulting was motivated by the work of the Advisory Committee on Civil Costs. The committee is currently investigating the extent to which referral fees account for the 20-35% gap between the hourly rates charged by claimant and defendant solicitors, which it uncovered last year.
Oxera said marketing spend on PI claims as a proportion of base costs – 23-40% – was high when compared to other consumer and professional services.
Law Society chief executive Des Hudson said: ‘We are surprised the ABI is criticising the payment of referral fees in claimant work when their members regularly charge solicitors similar fees for cases.’
An ABI spokesman said charging referral fees is a commercial decision for individual insurers, but that the income would be reflected in lower premiums.
A spokeswoman for the Association of Personal Injury Lawyers said it was impossible to compare costs in the absence of information about defendant lawyers’ business models. ‘This is the research which is needed now, rather than a report which compares injured people with, among other things, cars, chocolate and toothpaste,’ she said.
Comments
Personal injury - Free referrals
You know what might be a good idea.
Go to all your local accident repair centres.
Speak to the manager.
Explain you are a local lawyer that represents people involved in
car accidents.
Tell him you'd love to offer his customers a free appraisal.
Get him to hand over your audio CD about personal injury and
motor accidents to every customer that comes in.
Thank him profusely when he sends you clients by sponsoring
his kids football team strip with his company name on it.
10 accident repair centres
50 customers a week
500 prospects a week for you
2000 prospects a month
24,000 prospects a year
500 new cases for you
want to do it?
Referrals
The root cause of the problem lies with lawyers, frightened of having a reducing case load, outbidding each other for new work sources.
Everyone, including consumers, are being offered incentives.
Maybe the solution is with lateral thinking - do away with lawyers and allow a tariff system akin to Criminal Injury cases.
This would take at least 50% of simple cases out of the loop.
The remainder could be treated in the same way as the IRISC scheme with a fixed (but guaranteed) fee regime.
No more need for PI CMC's and short-sighted lawyers.
Referral fees
APIL's attitude to the issue of referral fees has always been somewhat mixed. In November 2007 they stated: "The Law Society’s code which governs the ban had proved unenforceable and, in the end, APIL believed the consumer would lose out, as there was no transparency or consistency in what was a chaotic system. This situation forced the association into the position of reluctantly supporting removal of the ban...". The previous rules were not "unenforceable" they were simply not properly enforced in the way they should have been.
The insurance industry also sends out mixed messages with some sections opposed to referral fees and the way these push up legal costs with other sections of the industry happily charging referral fees.
Any scope for a meeting of minds?
Referal fees and costs
Defendant fees are always lower as they effectively PAY for work through reduced hourly rates whereas Claimant fees include the need to market their firms for the work - Defendants do this by offering low rates to guarantee the work to them.
Regarding costs spiralling that is somewhat disingenuous as the majority of personal injury claims for Vehicle acidents the majority of which are valued below £10,000 so are therefore governed within the predictive cost structure which has not increased at all (so therefore decreased in real terms) for the last 6 years.
The Law Society is quite right in that the insurers are the ones that charge the referal fees in a lot of cases it is the simple case of take the fees from the Claimant firms and use them as an excuse to try to reduce costs overall - have your cake and eat it seems to come to mind as I am sure irrespective of what costs are agreed for Claimant firms the Insurers will still be trying to get their referal fee.
Conclusion - high street firms will deem it to be not cost effective to this type of work and more will be shipped off to the bulk firm using unqualified staff - who suffers - surprisingly the Claimant as they get the cheap option to enable money to be made - Access to Justice - I dont think so.