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Policy fee of £15 'rips off' drivers
Insurance companies are 'ripping off' Britain's motorists by up to £270m a year over 'completely unnecessary' legal expenses insurance (LEI), a controversial new campaign claims.
The Accident Relief Campaign is attacking what it calls the 'claims roundabout', whereby most motorists pay £15 on top of their premiums to cover them against personal injury claims when, they argue, any solicitor would usually handle their case on a 'no win, no fee' basis at no expense to the driver.
'It is a real rip-off,' says Nigel Mills, a spokesman for the group. The campaign has the backing of many claimant lawyers, who have long taken issue with motor insurance policies.
'It is debatable whether LEI is "insurance" at all,' says leading costs expert Kerry Underwood, a partner at Hemel Hempstead law firm Underwoods. 'Largely the driver is buying is an introduction to a lawyer, so if there's an accident the insurer or motoring group simply flogs their case on. If motorists knew they were paying £15 to enable an insurer to sell their case for a tidy £700 they'd be appalled. Rightly so.' Some solicitors firms pay £500-£700 in referral fees for individual cases in what the campaign calls 'sleazy kickbacks'. Underwood says it is the consumer who loses out.
Not everyone agrees. The government and Which? (formerly the Consumers' Association) have long pushed for the expansion of legal expenses insurance as a way of providing access to justice, as well as being a safe alternative to 'no win, no fee', which has been accused of enabling dodgy claims companies to swallow up the damages of legitimate accident victims. As well as being offered an 'add-on' with motor policies, LEI is often given away with home policies (see below).
LEI recently won the backing of the Civil Justice Council, an influential judicial reform group. The council noted in a report that 'the case for promoting LEI is even stronger as legal aid becomes more restricted and as more people are becoming aware of the benefits offered by the policies they hold'.
Insurers also dispute the criticisms of motor policies. Paul Asplin, chief executive of LEI company DAS, which has the lion's share of the market, denies any solicitor would do the work on 'no win, no fee' at no cost to the driver. Solicitors would only be interested in cases where they could recover their costs from the other side. 'And that's only 20 per cent of cases,' he argues. 'Some eight out of 10 will not be cost-bearing because they will be below the small claims court limit or do not involve injury.'
Asplin also argues that there are more benefits than simply accident cover for 'minimal premiums', including cover for foreign claims, other sides' costs in lost cases and other expenses, such as replacement car hire. He also defends referral fees, saying they are 'the only source of income we get, and without it our business model would just fall over'.
The Association of British Insurers agrees. A spokesman says: 'Legal expenses insurance is not compulsory. It adds on approximately £15 to a motor policy [average comprehensive cover is £400] and provides peace of mind in cases following legal disputes after a crash. Bearing in mind that a motorist makes a claim once every five years, having this can be useful, particularly in cases where there is doubt over liability.'
John Peysner, a law professor who chairs the Civil Justice Council's costs committee, shares the concerns that motorists are being misled, but adds that it does not necessarily mean they are not receiving a good service,
'They're buying an orange which might be a perfectly good orange, but they thought they were buying an apple,' he says. 'However, they aren't aware that the insurers, having acquired their case, are going to sell it at a lot more money than they ever got from the premium.' He says the referral fee system is 'completely untransparent'.
Neither are insurers and brokers keen to reveal that they are being paid for referrals. A spokeswoman for solicitors Shoosmiths confirmed to The Observer that it pays referral fees to the AA's motor insurance broking arm, adding that the sums involved are 'nowhere near as much as reported'.
But the firm later sent an email stating 'all our commercial arrangements with clients are subject to confidentiality obligations which we honour and therefore we cannot discuss or comment at all on the content of them'. The AA emphatically denied it was receiving payments for referring cases to Shoosmiths.
Meanwhile, the Accident Relief Campaign itself came under fire last week for offering drivers £250 in 'early financial assistance' through the Motor Accident Relief Society, a charity that runs the ARC as a separate campaigning arm. The Claims Standard Council, an industry watchdog, says that such arrangements amount to 'an inducement to the public to make a claim'.
'I can't see any difference between offering money upfront in this way and someone standing outside a hospital ward waving a wad of cash to accident victims,' says CSC spokesman Andy Wigmore. The CSC has complained in the past to the Advertising Standards Authority about two claims firms offering money upfront. Neither complaint was upheld.
Source: The Observer |
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