Debt problems faced by drivers ‘may not end with ban’

Drivers who may face debt problems due to soaring car insurance costs could find they are still faced by inflation in the sector despite the government’s planned ban on referral fees.

The proposal will abolish the practice of claims firms paying solicitors to pass on to them possible cases where a driver may make a personal injury claim – often frivolously – on a no-win, no-fee basis, something that has been blamed for pushing insurance rates up.

Technical manager in the claims department of Allianz Martin Saunders said the measure is an “excellent start”, but added: “Banning fees still leaves money in the system and it’s the money in the system that ultimately equates to the premium that consumers … are being charged for insurance.”

He added that the legislation needs to go further as there are other incentives for lawyers to push such claims, stating: “We also need to look at the fixed costs regime solicitors get remunerated in all of this.”

Such a warning means that consumers are not yet at a point where they can be sure there will not be future surges in the cost of insuring their vehicles.

The Ministry of Justice announced the plans last week, with Justice Minister Jonathan Djanogly stating that the “compensation culture” that benefits the “middle man” at the expense of the rest of society must be ended.

He also said new legislation in parliament will end the “bizarre” situation in which claimants do not have to pay a fee if they lose their cases.

By Joe White