The UK government on Friday announced tightening of laws to curb the compensation culture fuelled by the no-win no-fees system for personal injury cases.
The Tory-LibDem coalition announced a ban on the payment of referral fees in personal injury cases to tackle rising insurance costs.
“Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system. People are being encouraged to sue, at no risk to themselves, leaving schools, business and individuals living in fear of being dragged to the courts for simply going about daily life,” justice minister Jonathan Djanogly said.
“The no-win, no-fee system is pushing us into a compensation culture in which middlemen make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices,” he added. The government, however, has not said when the ban will come into effect.
Insurers welcomed the new curbs as the consumer watchdog revealed the steep hikes faced by customers in case of motor insurance, as average premium increased up to 40 per cent in a year.
Referral fees are incurred when a no-win-no fees claim is passed between claims management companies, who advertise compensation claims for accidents, insurance companies, lawyers and others who charge each other a referral fee for “referring” the claim up the line. The lawyer sues for compensation. If he wins, he can recover his costs and his “no-win, no-fee” mark-up on his costs from the losing defendant (or often the defendant’s insurance company) which will cover the referral fee.