January 15, 2010

Action Jackson’s back. And this time the celebrated legal lord comes packing his eagerly anticipated report on the future of UK civil litigation. One standout recommendation is that PI referral fees must go – or at least be severely curtailed.

In his report, Lord “Justice” Jackson says “It is a regrettably common feature of civil litigation, in particular personal injuries litigation, that solicitors pay referral fees to claims management companies, before-the-event (BTE) insurers and other organisations to “buy” cases. Referral fees add to the costs of litigation, without adding any real value to it. I recommend that lawyers should not be permitted to pay referral fees in respect of personal injury cases.”

Even guys in wigs have bought into to the ‘added value’ mantra these days, it seems. But if Jacko’s recommendations are adopted, the personal injury landscape could soon look very different. So too will the finances of the many brokers who currently benefit from referral fee income via outsourced claims management companies. The prospect of yet another squeeze on their revenue streams will do little to cheer brokers’ spirits in this bleak midwinter.

Jackson believes that the losing parties in civil cases should no longer be held responsible for funding claimants’ after-the-event insurance premiums. Instead, successful claimants should get a 10% increase in the damages they receive.

Happily, Just Ice Jackson was able to confirm that “Solicitors and barristers will continue to earn a reasonable living.” But the personal injury arena, he argues, has come to focus too much on generating income for lawyers and intermediaries and too little on compensating claimants.

“The fact that such substantial referral fees are being paid,” he said yesterday, “illustrates that there is too much money swilling around in the personal injury compensation process. Under the current regime, personal injury solicitors are not competing on quality of service or charges to the client, but on who can pay the largest referral fee.” Now he wants solicitors to compete on the basis of offering clients the lowest success fees, rather than relying on payouts from the losing party.

All well and good in theory. But is there a danger – as with extending IPT to brokers’ administration charges – that it hasn’t quite been thought through fully? If you take claims management companies out of the equation, how do those involved in accidents find the right lawyer? Who are they going to call?

The money lawyers currently spend on referral fees they’ll need to spend on advertising if they’re going to get new PI business through the door. So the reforms will do nothing to reduce lawyers’ client acquisition costs and could actually leave even less in their coffers to cover the actual provision of legal services.

The winners will be the firms with the biggest advertising budgets and/or the Tescos of this world for whom potential PI claimants are a captive audience. Today school uniforms – tomorrow personal injury claims. Will claimants end up getting a more professional legal service at the end of the day? Probably not.

Fellow Judges, led by Lord Justice Judge, have given Jackson the thumbs-up. Justice Minister Jumping Jack Straw says he’s looking forward to having a proper look and a bit of a think. Let’s hope he’s good at working out how cold commercial logic can derail the best intentions…



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