Editor's comment: Referral fees witch hunt

"This is not a system; it's a racket. The quicker it's ended the better," wrote an "incredulous" Mr Straw in Monday's paper: "Referral fees must be outlawed." Indeed, that is exactly what the Association of British Insurers has been demanding for several months now.

If only he had vocalised his objection to referral fees representing the "economics of a madhouse" when he was Justice Secretary. Wouldn't it have been simpler to outlaw the practice when his party was in power?

But this simply wasn't possible. Apparently, while governments can introduce legislation to ban the recoverability of after-the-event insurance premiums and success fees, they are powerless to outlaw referral fees.

Don't take my word for it. I quote the Ministry of Justice in July 2008 when fixed costs were under debate — right in the middle of Mr Straw's tenure as Justice Secretary: "The consultation paper stated that the fixed costs would not include 'the cost of referral fees'. Some respondents understood this to mean that the government intended to ban referral fees. This is not the case, as any decision on whether or not referral fees should be allowed is not one for government to make."

It was about this time when respective governments began tossing the hot potato about — most recently landing in the lap of the Legal Services Board. In stark contrast to Mr Straw, the LSB found itself "persuaded the interests of consumers are best served by continuing to permit referral fees".

But perhaps Mr Straw's outburst — coupled with the relish of the national press at unveiling a "scandal" that has actually been vociferously debated for years — will grant the ABI's wish by the back door. As Post went to press, Axa was the first major insurer to declare it would "no longer accept referral fees".

Of course, without a wholesale ban, voluntary efforts by insurers will simply mean others continue to make money while insurers lose revenue. And I can only predict one potential impact on motor premiums from that.

Lynn Rouse
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