Direct Line received £21 million in referral fees

Insurer Direct Line took a £14 million hit from the banning of referral fees last year, the company revealed today.

According to annual financial results posted to the London Stock Exchange, the motor insurer brought in £6.9 million last year from fees paid by solicitors for claims – down from £21.1 million in 2012. This means Direct Line was selling the compensation cases of its customers to solicitors. It is odd to hear insurers complain about the high volume of claims when they pocket more than their fair share of the proceeds.

Paying or receiving referral fees was banned in April 2013 under the Legal Aid, Sentencing and Punishment of Offenders Act.

But the loss of referral fee income made little difference to Direct Line’s profit figures, which showed a 70% increase in group profit before tax for the year ending 31 December 2013. The group made £423.9 million last year compared with £249.1 million in 2012, even though turnover fell 4% to £3.8 billion.

In terms of motor premiums, Direct Line said it reduced prices on average by 3% during 2013 following ‘positive trends’ in small and large bodily injury claims – namely last year’s legal reforms.

The financial results note that Direct Line has successfully created its own legal services division as an alternative business structure. The statement adds that this venture should ‘help to shield existing customers from potentially excessive third-party solicitor fees’. This means Direct Line will have its own legal business to handle compensation cases for its customers. So if they cannot collect referral fees they will do the legal work themselves. However they will not earn anything like the money referral fees produced.

Group chief executive Paul Geddes said: ‘We have continued to make good progress on our strategic priorities, helping us to achieve our 2013 financial targets in highly competitive markets.

“In UK motor, our improved pricing capability and claims management, as well as benefits arising from recent legal reforms, enabled us to reduce average prices for customers by 3% during 2013.”

The company’s share price rose by 2.45% on the announcement.

YourKey consistently tells you why independent advice is vital after an accident.

The majority of this article was published by The Law Society Gazette which published their article on 26 February 2014. Thanks for the information.