The public’s knowledge of legal expenses insurance is limited, despite the fact that 25 million UK households have bought the cover, according to research published today.

A report by Consumer Focus, the UK consumer watchdog, found that 43% of people knew little or nothing about before-the-event legal expenses insurance (BTE LEI), but around 60% of people have paid for the cover.

The watchdog found that 53% of people who claimed successfully for BTE LEI thought it was the only way they could have sorted their legal problem.

But a third of consumers said their claim was refused with no explanation, and 37% said their claim took a long time to be processed.

The watchdog warned that even a better performing legal insurance market will not fill the gap that reform of no-win, no-fee arrangements and legal aid cuts will leave.

Lola Bello, legal services expert at Consumer Focus, said: ‘Worryingly for a product that millions of us have, there seems to be widespread confusion over what customers are actually paying for.

'If these insurance products are to play a more important role in providing affordable access to justice they must be truly fit for purpose.

‘Eligibility for legal aid is dwindling, and this has resulted in a lot of noise about legal expenses insurance stepping into the breach.

'Our research shows legal fees insurance could help some consumers, but it cannot plug the gap that any legal aid cuts will leave behind.’

BTE LEI, which typically costs between £13 and £24 a year, is commonly bought as part of a bundled insurance product, like motor or home insurance.

It normally entitles the buyer to free legal advice and representation in civil disputes.

Consumer Focus said that the £447m BTE LEI market needs to give customers more choice over their legal representation, be better promoted, better explained, and be more consistent in what it offers.

The watchdog called for improved consumer information and clearer marketing, such as comparison tables and key facts documents; a consumer information and knowledge campaign; an independent appeals system; freedom for consumers to choose their own solicitors; and a review by regulators of the impacts of referral fees and bundled bank account packages on the market.

The report, In Case of Emergency, also noted that BTE LEI tends to be geared towards higher income consumers.

It found that ‘in-house lawyers often do the initial assessment of the case, raising issues over whether the insurer is working for the claimant or the insurer… this clearly raises issues of impartiality, as do "referral fees" law firms pay insurance to companies in order to be a preferred firm for its business’.

The report was based on a survey of 1,101 consumers.