Oct. 11 (Bloomberg) -- The U.K. government should halve the amount lawyers receive for administering motor insurance claims for personal injury to control rising claims expenses, according to former Home Secretary Jack Straw.
“What we’ve got is unnecessary costs riding in the system,” Straw told Parliament’s Transport Committee today. Removing 600 pounds ($938) from the 1,200 pounds lawyers receive for processing claims would reduce “fat” in the industry, which has caused premiums to rise to record levels, he said.
Car insurers, claims management firms and brokers have been blamed by members of Parliament including Straw, for selling information about customers to no-win no-fee lawyers and car- rental firms, who then pursue claims from rival insurance companies. While the number of accidents has dropped, claims have risen, driving premiums up.
Justice Minister Jonathan Djanogly said last month he intends to ban referral fees as part of an overhaul of the legal system. Straw, who has campaigned for the changes since June, wants the government to go further and reduce lawyers’ profits.
Insurers, lawyers and claims-management firms introduced a database last year to process personal injury claims known as the Road Traffic Accident Portal system. Straw said the system, which entitles lawyers to 1,200 pounds in administration fees, also helps fuel spurious claims. In Germany, lawyers are paid 300 euros ($409), according to the Association of British Insurers, the industry lobby group.
U.K. insurers and brokers make about 800 pounds for referring each customer, meaning the practice made them about 320 million pounds in the past year, according to personal injury law firm Spencers Solicitors Ltd.
The ABI in November called the claims system “dysfunctional” because insurers help fuel a compensation culture that has forced the industry into an underwriting loss on motor insurance each year since 1996.
The amount paid in claims by insurance companies rose 28 percent to 10.3 billion pounds in 2010, according to data compiled by the ABI. The number of accidents on British roads fell 18 percent to 154,414 from 2006 to 2010, according to the Department for Transport.
That prompted the price of comprehensive motor insurance to soar 40 percent to about 900 pounds in the 12 months to March, according to the Automobile Association Ltd.’s Shoparound Index, which tracks the cheapest quotes.
--Editors: Jon Menon, Steve Bailey
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