Readers will remember that former justice minister Jonathan Djanogly was required to begin many public appearances by declaring an interest (‘possibly’) in the insurance sector.

Djanogly will probably be best remembered for his ban on referral fees. This included his attempt to ride roughshod over the misgivings of the Legal Services Board, which saw no reason for a ban, and remove this ‘parasitic’ drain on our car insurance premiums. (It was not, of course, a hasty move designed to usurp Jack Straw’s similar attempt). Perhaps Djanogly’s heart was in the right place. Perhaps he meant well and thought he was genuinely cleaning up the industry and leaving a positive legacy.

However, in reality the ban has simply opened the door for insurance companies to hide the profits they make from referrals and keep this merry-go-round turning as quickly as ever. The reason? The alternative business structure - a Trojan horse entering the legal profession behind which any organisation is entitled to enter the market.

Ban supporters spoke of unintended consequences from ABSs like they were a worse-case scenario. Sure, there may be some who played the system and engineered profits from exchanging accident victims’ details, but they’d be the exception. Djanogly himself, seemingly not aware of this, told the transport select committee in 2011: ‘The idea that insurance companies are going to benefit from what we are doing is certainly not the case for all insurance companies and I would say not necessarily the case for most.’

Yet within a week of the ban that prediction has proven to be utterly misguided. Two of the biggest car insurers in the UK, Admiral and Ageas, responded to it by setting up joint ventures with law firms.

In effect, they have put up the shutters and taken the profits they make from selling their customers’ details in-house. Referral fees? Not at all officer, we simply point our loyal flock on to a trusted legal brand which happens to be inextricably linked to us. Nothing to see here.

What they are doing is completely lawful: the terms of the referral fee ban are quite clear – there is no breach if information is kept within the one building. So long as insurance companies and their law firm partners act as one entity, they won’t be getting a knock at the door from the Solicitors Regulation Authority anytime soon.

Lawful, yes. But in keeping with the spirit of the ban? Not a chance. Motorists will still get the call within days – even hours – of suffering an accident. They will still be encouraged to make a claim against the at-fault driver.

Admiral will continue to profit from personal injury claims on the one hand and fight them on the other. The system remains dysfunctional, only now it’s just that little bit less transparent. According to Admiral’s financial results for 2012, the firm was forced to admit it earned £18.6m from referral fees last year – now the lines are more blurred, we probably won’t know what profits it delivers in 2013.

Back in 2011, Djanogly was optimistic: ‘We want the benefit of [the ban] to feed through to the consumer in lower insurance premiums.’ How ridiculous that notion looks now as insurance companies once again get stronger thanks to this government’s ill-thought-out reform agenda.

John Hyde is a Gazette reporter

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