June 28 (Bloomberg) -- Axa SA became the first insurer in the U.K. to end sales of customer details to lawyers after politicians said they were feeding a “rotten suing culture” that has caused motor insurance premiums to climb at the fastest rate on record.
Europe’s second-largest insurer will “lead by example” and cease to accept payments from personal injury lawyers for customer referrals, Paris-based Axa said today. The Association of British Insurers blames referral fees for fuelling the higher frequency and cost of whiplash claims.
“Referral fees have only served to promote an even greater number of injury claims and AXA will stop this practice whilst government implements the necessary legislation to restore order,” said Paul Evans, chief executive officer of Axa U.K., the country’s third biggest non-life insurer.
While the fees are part of a “rotten suing culture,” the U.K. has no plans to ban them, Justice Minister Jonathan Djanogly told the British Broadcasting Corp. today. Instead, government proposals being debated in Parliament tomorrow will limit lawyers’ fees and so help end Britain’s “compensation culture,” he said. According to the ABI, insurers feared that if they broke ranks and banned the practice it would allow competitors to benefit.
Axa also called for “a fundamental evaluation of whiplash and other minor ‘trauma’ claims to eliminate fraud and bring some sense back to the cost of these claims.” Whiplash is a soft-tissue injury doctors cannot verify using X-rays or scans.
The average U.K. motor insurance premium has risen 40 percent in the past year to about 900 pounds ($1,440) following soaring claims costs and rising fraud, according to the Automobile Association Ltd. Insurers have helped fuel these costs by selling customers’ details to no-win no-fee lawyers, who then encourage accident victims to claim.
“If insurers weren’t doing it then someone else would,” Malcolm Tarling, an ABI spokesman, said today. “Banning referral fees should form part of wide-ranging reforms to whiplash injury claims.”
The referral issue arose yesterday when former Justice Secretary Jack Straw called for a ban on insurers selling details of their customers to lawyers and car-hire companies.
The proposals being debated in Parliament tomorrow mean lawyers’ fees will be paid from the winning claimant’s damages rather than by the defendant, Djanogly said.
“Claimant lawyers will be more cautious to take on cases,” he said. “Claimants will have an interest in what they’re paying their lawyer. That will be the key for reducing costs.”
‘Excess of Money’
The ABI said yesterday it favors an outright ban of referral fees even though they contribute significant revenue to insurers. A 2010 review of civil litigation costs by Lord Justice Jackson also recommended banning referral fees.
“Banning anything is not necessarily going to solve the problem,” Djanogly said.
Some police forces are charging fees for tipping off wreckage clearance firms after an accident, according to data obtained by insurer Swiftcover.com, a unit of Axa SA, through the Freedom of Information Act.
The wreckage firm subsequently bills the at-fault driver’s insurer for their services. West Midlands Police made 24,891 referrals in 2009, charging 25 pounds each, the data showed.
The government would ban police from selling customers’ personal information if they were found to be doing so, Djanogly said. “We have very stringent data protection laws.”
The Association of Chief Police Officers said forces do not sell victims’ details to lawyers.
“The figure of 1.3 million pounds referred to by Jack Straw represents fees charged to vehicle recovery companies,” said Chief Constable Phil Gormley in an e-mailed statement.
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