Referral fee ban benefits car insurance customers

The government is set to ban lawyers from buying data on drivers involved in accidents, a practice that has been blamed for rocketing car insurance premiums. That ban could not come soon enough.

Known as “referral fees”, the payments are routinely made by personal injury lawyers to secure drivers’ details from insurance companies, garages and claims management fims. Lawyers then contact drivers encouraging them to make no-win-no-fee claims.

As the number of frivolous personal injury cases rises, so too do legal costs for the insurance companies involved. And they pass on the extra expense in higher premiums for all drivers, regardless of whether they have made a claim.

Insurance companies have themselves been culpable in perpetuating this suicidal cycle. None of them has been willing unilaterally to renounce referral fees, for fear of giving a competitive advantage to the rest. Each payment can be up to £1,000. Yet even the Association of British Insurers (ABI) is now calling for a ban, blaming referral fees for their increased legal costs and therefore higher premiums.

This practice has become a shining example of bad data marketing. Whichever way you slice it, the consumer loses. Insurance premiums have gone up 40% across the board in the past year, despite consistently falling accident figures. Drivers can also be bombarded with spurious and irrelevant text messages when there is no reason to believe any injury occurred.

Admiral has been one dissenting voice among insurers, arguing that it only passes on details when it would help drivers to make a valid claim. But that is certainly not the case across the industry.

The unidentified companies that incessantly text me encouraging me to make a personal injury claim are clearly uninterested or unaware that I have not been involved in a car accident in nine years. Even then, it was a driving lesson in an instructor’s car and my mobile number has since changed, leading me to believe that whoever sold these people my data was prioritising their profits over my convenience. And were I to make a claim, it would certainly be frivolous.

If companies like Admiral want to protect this income stream, the industry needs to show that data will only be sold when a driver could actually need to make a claim, and has consented to personal injury companies getting in touch. Otherwise these referrals are of no benefit to consumers and deserve to be banned.