Ban imminent on referral fees to car insurance companies

A ban may be imminent on referral fees to car insurance companies, according to the Association of British Insurers.

Jack Straw’s June call for the government to outlaw the practice outright has breathed new life into the motor car insurance industry to ban the practice.  As a result, the former justice minister’s words have resonated strongly with Parliament, says Nick Starling, general insurance director for the ABI.

In a recent interview, Mr Starling said that it is almost a certainty that the government is going to place a ban on referral fees thanks to Mr Straw’s intervention.  While nothing is definite until the new legislation is signed and sealed, the discount car insurance expert expressed confidence that the government would finally weigh in on the issue.

Insurance companies have remarked that referral fees have led to the encouragement of fraudulent or frivolous car accident claims, with the value of personal injury claims increasing twofold to £14 billion from 2002 to 2009.  The insurance industry has been facing underwriting losses for every one of the past 16 years due to not only  increasing claim but also intense competition and falling prices, the ABI said.

This has led insurance providers to institute car insurance rate hikes, with the average premium price increasing by a factor of 35.7 per cent in the year to March 2011.  Insurance providers themselves are awarded referral fees for forwarding the personal details of customers who suffer injuries in accidents in which they had no fault, though the majority of insurance industry experts remarked that, in the event of a ban, the decrease in claims would outweigh the revenue loss accompanied by the elimination of referral fees.

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