Wednesday, 21 September 2011

Fixing a broken system

What’s not to like about last week’s announcement by the Ministry of Justice (MoJ) that referral fees for personal injury claims are to be banned? After all, for far too long we’ve been held hostage by a dysfunctional system, one which privileges money over merit so that the law firm that pays the most, rather than that which is best equipped to deal with an accident victim’s claim, is rewarded. Surely, then, the MoJ’s declaration is good news?

Well, yes, but in truth the MoJ’s announcement is more of a step forward on the long road to recovery than news of complete rehabilitation. That there is a long way to go is best illustrated by a look at the nitty-gritty of the current system. Today, as you read this, a personal injury lawyer somewhere in the country will be signing off a payment which secures drivers’ details from an insurer, a garage or, most probably, a claims management company. En route, data protection laws will almost certainly have been breached – did you really consent, when you renewed your insurance policy a decade ago, for your mobile phone number to end up on an accident claim marketer’s database? But no matter: the show must go on. And so claim after claim is made, creating a vicious cycle which sees the insurance companies pass on their increased costs by setting higher premiums for all drivers, irrespective of whether they have made a claim.

Sound familiar? Does it also sound like a racket? The Chairman of the Bar, Peter Lodder QC, thinks so. For him, referral fees are “bribes and add an unnecessary cost to litigation ... [they have] no place in a fair and open justice system.”

Most agree that they wish referral fees were not in the system and so although it is impossible not to welcome the MoJ’s announcement, a huge cautionary note needs to be sounded. What is required is a holistic approach to curing the ill of referral fees. The current system is complex, with any number of strands going off in any number of directions, and we must beware of piecemeal solutions. What, for example, is the government’s definition of a referral fee? How will the advent of Alternative Business Structures (ABSs) influence the personal injury and insurance markets? Could it be, thanks to the ABS regime, that a claims management company or insurer takes over a law firm? Market rumour is indicating that a vast majority of CMCs have expressed interest in doing just that when the time comes. Also, what of data protection, SMS spam and the RTA Portal?

Ultimately, reform of this sector comes down to one thing. How far are we from acknowledging, as Lord Jackson’s Report urged in January last year, that accident victims are not a commodity?