Copyright (c) 2010 Evolution Legal

When LJ Jackson sat down to re-write the future of legal services, top of his list seemed to be the banning of referral fees and from all around it was 3 cheers for Jackson. Well hang on LJ you and your gang are just plain wrong.

Do you remember as far back as 1999 and the newly written Access to Justice Act? If you can you will recall that referral fees were banned at that point. Hence convoluted business models (translation: back door referral fees), the rise of Claims Direct and The Accident Group, severe malpractice (lawsuits still ongoing?) and grossly inflated ATE premiums – all of which led to satellite litigation, technical challenges and an industry meltdown.

In 2004 sanity prevailed and there was a change to the Solicitors referral code, allowing referral fees to be paid if handled in a transparent manner and this resulted in the most stable period that the personal injury sector has enjoyed for a long time and increased access to justice for the man in the street.

This, coupled with the regulation of Accident Management Companies resulted in a significant watershed in the personal injury market.

If referral fees are banned once again, we will undoubtedly see the return of back door payments, malpractice, legal challenges, back to the instability the market endured around the start of the Century.

The future threatened is completely out of kilter with the modern commercial world and is effectively one of legislation against market forces.

With the millions and millions of pounds spent by CMC’s and Solicitors on advertising, the public are more aware than ever of their rights and of the availability of access to justice. Jackson believes his changes are about access to justice, but he has monumentally failed to understand the market, apparently looking upon CMC’s as some sort of “parasitical leach” and let’s face it, who cares what happens to them?

In practice, referral fees paid by Solicitors to CMC’s merely form part of a marketing budget that the Solicitor would no doubt have spent on some other sort of marketing drive, such as advertising, but has chosen to spend the money with a CMC as there is a some form of a guaranteed result – so who’s decision is it to spend the marketing budget with an advertising agency or with a CMC?

So what is a referral fee? Certain people seem to use the term to imply some sort of dishonesty, but of course only when discussing those dastardly CMC’s!

It is also perplexing that the legal snobocracy fail to realise that the year is 2010 and that Solicitors are business people and are not following some kind of vocation. Operating a law firm on the basis that the public will find you through membership in MASS or APIL or by walking into your office on the High Street will result in failure, and the clever law firms know this. But also please note: No-one is holding a gun to the head of the poor Solicitor, being bullied by the awful CMC. They choose to pay a CMC because it is usually the most effective use of the marketing buck.

Furthermore, why is it that CMC’s are the parasites, but Solicitors are perceived as “seekers of truth and justice”? The marketing model for acquiring new clients is broadly the same yet Conservative Shadow Justice Minister Henry Bellingham, recently commented that if the Tories got into power, they now don’t want to ban referral fees (as they previously stated they would) as it is not a very capitalist thing to do, but in any event they didn’t want to ban them for those jolly good Solicitors, just for those awful, ambulance chasing CMC’s!!!!! Cheers Henry, there’s nothing like a free market economy to ensure a level playing field is there?

When the claims management market was regulated in 2004, advertising for clients in hospitals was mostly abandoned by CMC’s, only to be replaced at the speed of sound by Solicitors. Who are the ambulance chasers again?

The snobocracy also appears closer to home. I was recently having a few beers with some chaps from a law firm to whom we refer work to (I wont name names although I should!). Now this firm has conservatively had 500 Personal injury referrals from us in about 2 years and yes they pay us a fairly standard referral fee on a per case basis. It was all very convivial until the 3rd or 4th pint was downed, when the sneering dismissiveness began.

“All you do is fill a form in and send it on to us” “We do all the work” “All you do is sell claims on”

I was shocked to be honest.

Not because these people seemed ignorant of how much work and marketing spend goes into to securing a contract with an Insurance Broker for example, so that the phone rings and there is a client on the other end needing assistance after an accident. I already knew these were effectively house cats, sitting behind their desk being fed a steady diet of new clients each day, not knowing or caring how that new client magically appeared in front of them.

But the level of malevolence in which their diatribe was delivered took me by surprise. These “Solicitors” (they aren’t actually qualified) were more than happy to go and secure their pay rises on the back of bringing a commercial relationship to the Partners, happy to earn their bonuses on recovered legal costs, but actually they resent us as well.

But what does this all mean for those outfits at the other end of the referral process, especially Insurance Brokers?

Are they going to lose their valuable revenue stream of referral fees from their clients who have had non-fault accidents? If so does anyone care if this sends a few of them out of business?

Well yes we care! CMC’s and Insurance Brokers have a good understanding of what is required for the person who was actually involved in a non-fault accident needs, the actual brass tacks of sitting on the side of the road with a car you cant drive and 2 screaming kids in the back.

The Broker understands because that’s his client and he wants them to renew their policy with them next year, so he wants the client to have an A1 level of service, after all claims are the shop window of the Insurance process. The CMC understands because he wants the Broker to refer more clients to them, so who benefits? The client sat on the side of the road with 2 screaming kids that’s who!

At this point the Broker probably isn’t thinking about commissions or referrals, just the service that the client gets and there is the crux of the matter. For all the talk about referral fees being banned, yes some CMC’s will probably go to the wall and maybe even a few insurance brokers as well, but the real victims will be the policyholders who will have any choice removed from their decision making process and be left with a massive call centre to talk to and try and sort out a problem.