Why is it the insurance industry is always tripping itself up over fees? No sooner have those in the UK got over the fraught issue of insurers secretly paying fees to brokers to secure business (so-called contingent commissions) than another fee-based scandal has emerged.
As with the contingent commissions business, insurers seem to be wondering what all the fuss is about while their customers watch on with dismay.
In a nutshell, this is whats happening: motor insurance premiums in the UK are going through the roof. Part of the explanation for this (and ask any reinsurer to corroborate it) is that personal injury claims made following a car accident are soaring. This is because of the activities of aggressive personal injury lawyers maxing out claims for whiplash on car occupants.
The Association of British Insurers (ABI) recently described the UK as the "whiplash capital of Europe", with one out of every 140 people claiming for a whiplash injury each year.
It said the activities of ambulance chasing lawyers and claims management firms, as well as staged "cash for crash" accidents, were driving up the number of claims.
Three-quarters of personal injury claims in the UK are for whiplash, the highest level in Europe.
The National Health Service spends around £8m a year treating the injuries, but insurers are paying out nearly £2bn annually for whiplash claims.
The cost of motor cover has increased by 40% during the past year and the ABI estimates that the cost of whiplash alone accounted for around 20% of that figure.
But why are these rapacious personal injury lawyers so successful? Simple: they are very good at obtaining the personal details of people who have been involved in a car accident and then hassling them until they agree to make a claim.
These referrals dont come for free, however. The law firms are willing to pay good money to get names and telephone numbers to convert into lucrative claims. They pay the police, garages and insurance companies to hand on details of people involved in an accident.
Back up a minute. You didnt read that incorrectly.
Motor insurance companies are taking fees to pass on policyholders details so that ambulance chasing lawyers can encourage people to claim for a hard to diagnose personal injury. Claims that the insurers pay and then blame for the rising cost of insurance...
It beggars belief doesnt it?
The UK insurance industry trade body, the ABI, doesnt even deny it. Instead it says it wants the practice banned. Thats right, it wants its members to be banned from accepting referral fees. Its members are powerless to help themselves. WTF (Eds note: what the fee)?
With a totally straightface, the ABIs Nick Starling said on BBC R4 radio this morning that he was pleased politicians had joined our call for referral fees to be banned. He said, "It is not right that people take cash for tipping off lawyers about accidents which fuel personal injury claims, driving up costs for all motorists.
The normally unshockable anchor John Humphreys was incredulous and asked how it was possible then that insurers could continue contributing to the fee referral practice while at the same calling for it to be banned?
Starling, with no apparent sense of irony, stated that it was unreasonable to expect insurers to stop taking the fees while other parties were making a handsome profit out of them.
Of course the ABI and its members should stop taking the fees they should also stop taking the pee. The industry has a reputational problem as it is and absurd convolutions like this just make it worse.
Referral fees are a racket that insurers are complicit in and they should set an example and get out of the racket.
Footnote: It occurs to me that insurers selling motorists names and addresses (for around £1,000 each apparently) is actually illegal under data protection laws, without the persons consent. Clearly motor insurers are without shame, but they might at least want to avoid a privacy court case.