Government Announces Ban on Referral Fees

As part of the Government’s bid to tackle the growth of a ‘compensation culture’, the Ministry of Justice has announced that the payment of referral fees in personal injury cases is to be banned.

At present, referral fees are commonly paid when details of those who have had accidents are exchanged between insurers, claims management companies and solicitors. Solicitors who have paid referral fees in respect of successful cases are currently able to claim these back in costs. It has been argued that, as these costs are ultimately paid by the insurer of the losing party, referral fees have led to rising premiums, particularly for motor insurance.

Justice Minister Jonathan Djanogly said, “Referral fees are one symptom of the compensation culture problem […] People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life.

“We will ban referral fees and we will go further. We have proposals before Parliament to end the bizarre situation in which people have no stake in the legal costs their cases bring.”

However, many have expressed concern that the proposals may limit access to justice, discouraging people from pursuing compensation in deserving cases. Doubts have also been expressed as to whether the ban will in fact lead to lower insurance premiums, as insurers currently benefit from the receipt of referral fees.

It remains to be seen how the ban will work in practice, and exactly what transactions will be caught by it.