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Pssst – want to buy a compensation claim?
Mar 12, 2007
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Clients are the real victims of a questionable system that allows the insurance industry to ‘sell’ personal injury cases to law firms prepared to pay for them, says Nick Richardson. Nick, who heads our personal injury department, has acted in thousands of cases of accidental injury.
Every country in Europe has banned the practice of paying referral fees to non-lawyers.
Well actually that's not quite right. Despite the overwhelming 3:1 vote of the legal profession in 2004, the Solicitors Regulation Authority seems to think that this practice is OK in England.
Even though the buying of clients is ethically wrong for a profession and goes against our traditional standards, insurers, claims management companies and motoring organisations are selling their injured clients to lawyers at a going rate of around £600-£700 per case.
Big business
And it's not just the odd case. Direct Line runs online auctions, selling business in each of twelve regions of England and Wales. £3 million a year seems to be about the going rate to buy up all the referrals from any one of these regions. We are talking about a mega-bucks industry. Shoosmiths, one of the largest personal injury law firms in the country, buys 50,000 cases a year.
If a firm was buying in this number of cases, at an average of £650 per case, they would be spending a staggering £32.5 million each year.
So what?
This is bad for the legal profession and the clients. Smaller firms of lawyers simply cannot compete with the big boys. Clients are being denied their preference to instruct a local lawyer. Instead they are faced with a firm they rarely get to meet and cannot build a relationship with. They may think they are getting good service but don't forget the purchase cost has to come from somewhere. Effectively it comes out of the lawyers’ ‘budget’ for dealing with that case.
Crunching the numbers
The vast majority of accident victims receive compensation payments in the region of £2500-£3000. Based on the fixed rates lawyers receive for a road traffic accident claim, their average fee per case would be around £1300-£1400. But if you deduct the cost of buying the case in the first place, the lawyer’s earnings reduce to around £650-£750 per case. In most cases it is simply not possible for a qualified lawyer to properly run such a case and make a profit. Yet clearly Shoosmiths and others like them are making money, and a lot of it, otherwise they would not buy the work.
Its doesn’t require much of a leap to conclude that it is the client who pays in the form of a seriously diminished level of service. Either the lawyer will cut corners or, more likely the case that the client thinks is being handled by a lawyer is in fact being run by an unqualified person relying upon a computer system to tell him what to do.
Risk of under-compensation
This is tick box justice and it carries a very real risk of claimants being under-compensated. Is it a surprise, therefore, that this under-compensation favours the insurance industry – the same one that feeds claims to hungry lawyers and prefers to pay out less in settlement?
Good news for the insurers then - the same people who that think that a bunch of flowers and a box of chocolates is appropriate recompense for minor injuries and that doesn’t want claimants to get anywhere near a properly funded, independent lawyer for fear that they may be properly compensated.
Big names
Many of the largest motor insurers in the country including household names such as AA, Churchill, Norwich Union and Tesco are involved in this disreputable trade. However there are ethical insurers out there so let's hear a round of applause for AXA Insurance who will not accept referral fees.
Nick Richardson comments: “I am thankful to work for a firm that has refused to sign up to this practice and, as far as I am concerned, the sooner it is stopped the better. The ambulance-chasing badge and T-shirt has caused monstrous damage to the reputation of personal injury lawyers and to the legal profession in general. Doing a good honest job – isn’t that what being in a profession is all about?”.
Associate
Nick Richardson is an expert in personal injury law and a
long-standing. member of the Law Society’s Personal Injury Panel.
Contact nick.richardson@willans.co.uk