Insurer Direct Line took a £14m hit from the banning of referral fees last year, the company revealed today.

According to annual financial results posted to the London Stock Exchange, the motor insurer brought in £6.9m last year from fees paid by solicitors for claims – down from £21.1m in 2012.

Paying or receiving referral fees was banned in April 2013 under the Legal Aid, Sentencing and Punishment of Offenders Act.

But the loss of referral fee income made little difference to Direct Line's profit figures, which showed a 70% increase in group profit before tax for the year ending 31 December 2013. The group made £423.9m last year compared with £249.1m in 2012, even though turnover fell 4% to £3.8bn.

In terms of motor premiums, Direct Line said it reduced prices on average by 3% during 2013 following ‘positive trends’ in small and large bodily injury claims – namely last year’s legal reforms.

The financial results note that Direct Line has successfully created its own legal services division as an alternative business structure. The statement adds that this venture should ‘help to shield existing customers from potentially excessive third-party solicitor fees’.

Group chief executive Paul Geddes said: ‘We have continued to make good progress on our strategic priorities, helping us to achieve our 2013 financial targets in highly competitive markets. 

‘In UK motor, our improved pricing capability and claims management, as well as benefits arising from recent legal reforms, enabled us to reduce average prices for customers by 3% during 2013.’

The company’s share price rose by 2.45% on the announcement.