Insurers earn money from selling customers’ details to personal injury lawyers, claims management companies and garages after accidents.
In most cases successful claims are paid by insurance policies and insurers have covered the cost by passing it on to customers in the form of higher premiums.
However, the Government hopes to stem the rising cost of insurance cover by curbing the “compensation culture”.
“Honest motorists are seeing their premiums hiked up as insurers cover the increasing cost,” says Justice Minister Jonathan Djanogly. “Many of the claims are spurious and happen only because the current system allows too many people to profit from minor accidents and incidents.
Honest motorists are seeing their premiums hiked up as insurers cover the increasing cost
“Banning referral fees will make claimants think harder about whether to sue, and give insurers an incentive to pass the savings on to customers.”
Experts predict that if legal costs fall overall, it could mean lower prices for customers.
“This is great news for motorists,” says Which? Chief executive Richard Lloyd. “Referral fees feed the growing compensation culture that has been pushing up insurance premiums when many families are already feeling the pinch.”
Otto Thoresen, director general of the Association of British Insurers, welcomed the move, saying urgent reform of the compensation system was needed if premiums are to fall.
Campaigners also hope that the move will stop ambulance-chasing lawyers from manipulating the system.
Ian Crowder from the AA says: “We hope this will bring an end to the practice of no-win, no-fee cold calling.”