Racket or Reform?
The recent news on car insurance claims and declarations by critics like Jack Straw have left the industry feeling like a wet blanket of sorts.
Jack Straw has described the industry as a “racket” and a “dirty secret.”
However there are a number of contradictory views on these allegations that believe that the referral system for personal injury claims is just another marketing mechanism for law firms to create awareness and help those who have been mistreated.
It is a service that is provided by agents who work diligently to collect profiled data from those who have suffered from a personal injury by no fault of their own. The referrals are collected only from those who have agreed to give out their personal information and wish to be contacted.
The solicitors pay a referral fee for this information and directly deal with the client to solve the personal injury issue.
The only reason this industry is the cause of controversy is because the fees provided by law firms to get the referrals is considerable high, leading to a number of agents entering the sector within a short period of time. This has given rise to claims management companies that act as middlemen and pass on the contact details to the solicitors. Some of these agents have been involved in providing fraudulent and unqualified data to law firms, intensifying the “racket.”
An recent article by BBC claimed that, ‘The government is worried the current system has created a US-style "compensation culture", in which people are encouraged to launch frivolous claims by law firms who have bought their contact details and are offering to work on a no win no fee basis.’
This industry has been around for the past 20 years and the government relaxed the regulations on lawyers to promote competition and to help consumers easily access the solicitors in 1990’s.
The law firms spend a large amount of money to promote their business and are now part of the professional services competitive industry like most others.
The ones who are in favor of the reforms suggest that it would force lawyers to prove their creditability on the basis of the services they provide and would justify the exorbitant legal fees.
Then there are the others who propagate that the reforms provide easier accessibility to the legal system and reduce charges through the no win no fee system.
It would be difficult to prove how effective the ban is.
‘The best way for people to stop their insurers passing on their details to third parties is to opt out when buying a policy. Handled correctly, the referrals system could be a useful marketing tool for lawyers, and nothing more sinister for consumers than a form of targeted advertising.’ Money Talk by Dan Watkins.