Referral fees continue to dominate the insurance news of late as the current debate rolls on about whether they should be made unlawful.
So, what are referral fees?
A referral fee is a fee paid by a solicitor to a third party (claims management company, insurance company etc) for the referral of a client who wishes to pursue a claim for compensation for personal injury.
Referral fees are paid by solicitors for other types of work but what is outlined here is restricted to those paid for the referral of personal injury claims.
Is the payment of a referral fee detrimental to the client?
In a word, no. Referral fees are not recovered from the client (regardless of the outcome of their claim), or in deed the other side. A referral fee is purely a commercial expense of the solicitor who pays the referral fee.
What is considered wrong with referral fees?
It is argued that because organisations are paid referral fees for valid claims, a market has grown to encourage people to make personal injury claims that may otherwise not be identified.
As a by-product of this growing market, there is an on-going debate that referral fees increase the cost of litigation. Adding to this, Insurance companies argue that the existence of referral fees and the industry that has grown up around them inevitably increases the cost of insurance.
Is there a positive side to referral fees?
Many claims management companies provide a valuable service to their customers. Once the claim is referred to the solicitor, the claims management company are on hand to help the client with paperwork and queries relating to their claim. This can be particularly beneficial where English is not the client’s first language and the Claims Management Company is operating in and is part of the clients own community.
There has always been, and will probably always be reluctance on the part of some potential clients to approach solicitors directly. They are happier dealing in the first instance with a Claims Management Company who provide an interface between the potential client and the solicitor.
The existence of referral fees creates a much greater awareness and encourages people to make claims. Some see this as a bad thing, however if someone is injured through no fault of their own it is their legal right to claim damages. Making people aware of their rights under the law can only be a good thing and to suggest otherwise has sinister implications!
But what about the increasing cost of insurance?
Where the argument is about referral fees increasing the cost of a claim, it is not very convincing as costs are either fixed or carefully controlled by the courts. The referral fee is a commercial expense paid by the Solicitor to obtain the case and is not recovered from either side at any point in the claim.
Where does the industry stand on referral fees?
Lord Justice Jackson in his recent lengthy report detailing a number of reforms to the civil justice system aimed at reducing the cost of litigation mentions referral fees. He recommends that they be made unlawful or, as an alternative, are subject to greater control, for example, by putting a cap on the amount that can be charged by way of a referral fee.
There are those in parliament who have gone on record as saying that they would consider outlawing referral fees should the public demand it. It is very unlikely that there would be public demand for the outlawing of referral fees and in any event to remove referral fees now after they have been lawful for some years would mean dismantling the industry that has grown up around them.
Those who refer cases are already controlled and regulated by the Ministry of Justice and solicitors are bound by strict rules regarding referral fees. Part of the rules demand openness in that the solicitor has to make the potential client aware that they will be paying a referral fee for their case, who the fee is paid to and the amount of the fee.
How can this be resolved?
Tighter control of referral fees and those who charge them would seem to be the right way forward.
If a claimant has been injured in an accident that was not their fault, they have a right to claim compensation for the injuries that they have suffered.
The real expense to the insurance industry and solicitors alike are those who seek to make fraudulent claims. Tighter control is desirable particularly to ensure that only genuine claims are referred to solicitors and more importantly, greater sanctions against those who seek to refer other than genuine claims.
In any event the public always have a choice. Anyone who disapproves of the payment of referral fees only has to approach a solicitor directly to avoid any referral fee being paid.
At Wanstalls we are very happy for clients to approach us directly and strive to be as approachable and accessible as possible to encourage direct approaches. If you would like any further information about making a personal injury claim, please contact us using the form found here.
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Wanstalls Solicitors are based in County Durham in the North East of England. We represent clients both locally and nationwide and offer a friendly personalised service. If you would like to discuss any aspect of a personal injury claim, we would be delighted to hear from you.