The government has announced that it intends to ban insurance referral fees as it attempts to dismantle the “compensation culture” and clamp down on the rising cost of insurance fraud.

Referral fees is the name given to the cash that changes hands when an insurance company provides the details of accident victims to personal injury lawyers. It gives rise to a strange vicious circle where the insurer makes a few quid from the referral fee but then gets hit by a damages claim for a (usually spurious it seems) personal injury such as whiplash. In order to recover these costs the insurer then has to go on accepting referral fees and (you guessed it) hiking the costs of premiums.

So, led by Kenneth Clarke, the government has decided to do something about this and announced a complete ban on referral fees. The news has generally been welcomed, the Association of British Insurers (ABI) said;

“We are very pleased that the government has listened to the insurance industry’s campaign for a ban on referral fees. They add no value and encourage spurious and exaggerated personal injury claims.”

The news had a negative impact at Admiral who lost 5% of their share value on the announcement. Despite not selling customer data, Admiral report that about 6% of their UK car insurance profits come from fees.