Legal Aid, Sentencing and Punishment of Offenders Bill

Memorandum submitted by The Association of British Insurers (LA 94)

The ABI is the voice of insurance, representing the general insurance, investment and long-term savings industry. It was formed in 1985 to represent the whole of the industry and today has over 300 members, accounting for some 90% of premiums in the UK.


· The ABI is pleased with the Government’s announcement that they will ban the selling on of personal injury details – referral fees - which the insurance industry has been campaigning to ban for some time.

· Banning referral fees is an important first step in tackling our dysfunctional compensation system. In order for consumers to benefit fixed fees and hourly rates must be reduced accordingly.

· A ban must be implemented properly to ensure that the problem does not emerge elsewhere (bearing in mind the impending introduction of ABS’);

· A ban is necessary to stamp down on fraudulent whiplash claims, which are becoming increasingly problematic. Nearly 1200 whiplash claims are made every day in the UK. This is far higher than the rest of Europe but people in the UK do not have weaker necks than those on the Continent.

· The ABI wants the Jackson reforms implemented in full and as a comprehensive package. The danger of not implementing all elements of Jackson is that a piecemeal approach could lead to unforeseen consequences. The most undesirable of these would be increased costs for insurers and claimants and increased premiums for consumers.

Reduction in the level of fixed costs and guideline hourly rates

· The ban on referral fees needs to be introduced alongside a corresponding reduction in the level of fixed costs and guideline hourly rates in order for a ban to have any benefit for claimants and consumers.

· Fixed costs and solicitors’ guideline hourly rates currently take into account the costs of these referral fees and so with a ban on referral fees there will be no need to have costs set artificially high as they are now.

· The current fixed costs in low-value car accident claims (not including success fees) are £1200 – with referral fees often £800 claimant lawyers are still able to make a net income of £400. If they are able to run claims at £400 for a profit the current fixed costs need to be substantially reduced.

International Examples

· Motor premiums fell by 16% in Ireland in the two years after reforms were implemented which included speeding up compensation payments and reducing claimants’ costs.

· In Germany fixed costs are €300, it is a system that works efficiently to deliver justice and proper compensation without adding unnecessary costs.

We urge the Government to implement Lord Justice Jackson’s recommendations in full. A substantial reduction in legal costs and action to tackle fraudulent whiplash claims will help to achieve the Government’s objective to reduce the costs of civil litigation.

September 2011

Prepared 16th September 2011