Insurance giant Direct Line has confirmed that it is considering setting up a legal services arm when it is spun off from current owner Royal Bank of Scotland.

The revelation appears in a prospectus for a share flotation in the group, due to get under way this week. The document refers to the loss of income from referral fees from next April under the Jackson civil litigation reforms as having ‘a broadly neutral effect’.

A spokesperson for Direct Line Group said today: ‘In light of possible regulatory changes… which we support, we are looking at a variety of options including legal services to ensure we are able to sustain our competitiveness and continue to offer customers choice, and great value and service.’

Rival insurer Axa UK has criticised moves to make up for the loss of income from referral fees by taking on legal services.

Today’s Financial Times quotes chief executive Paul Evans as saying that the insurance industry is ‘trying to simply replace referral fees with an alternative model which isn’t in the interests of consumers’. However, according to the paper Evans indicated that Axa might reconsider its stance.