Can a cap on solicitors’ fees really cut car insurance costs?

We could all soon be benefitting from cheaper car insurance after the Ministry of Justice (MoJ) announced that there is to be a significant cut and a cap on the fees that solicitors can charge when dealing with road traffic accident (RTA) claims. Justice secretary Chris Grayling has outlined how fees for RTA claims of up to £10,000 will be capped at £500, down from the previous figure of £1,200, while costs for claims worth up to £25,000 will be limited to a maximum of £800. The cap on fees is part of a wider overhaul of the RTA claims system that will see radical changes made to the way in which personal injury claims are handled and how costs are recovered, which will have big implications for claims management firms and, in turn, the cost of car insurance. Here’s how…

Cut the cost of claims to cut the cost of cover

The Legal Aid Sentencing and Punishment of Offenders Act (LASPO) comes into force on April 1, 2013 and will bring with it an end to the referral fees that are paid by claims management companies  for passing on details of personal injury claims. Under the current system referral fees are paid for all claims, no matter how likely they are to succeed, and has led to the situation we have today whereby anyone who is involved in an accident is actively encouraged to make a personal injury claim. And with this increase in the number of claims comes an increase in costs, as everyone from breakdown recovery firms to insurance brokers make a quick buck, ultimately at the expense of honest motorists through inflated insurance premiums. It is hoped that the new legislation will lead to a reduction in the number of personal injury claims as a stricter vetting process will weed out the more spurious ones. This alone could save the industry around £1.5billion a year and could lead to reduction of around £60 in the price of the average annual premium.

An end to ambulance chasing

The new legislation also outlines how costs will now have to be taken from the damages awarded to claimants, up to a maximum of 25%, rather than from the defendant as is currently the standard practice. This has massive implications those claims management firms that offer their services on a ‘no win, no fee’ basis as anyone making a claim will now be charged a fee regardless of the outcome. Again, this should lead to a drop in the number of hopeful, and fraudulent, claims which will lead to further cuts to the cost of car insurance.

The solicitors’ side of the argument

Unsurprisingly, these new measures have not been welcomed by those in the legal industry who fear that it will lead to a reduction in the number of genuine compensation cases being brought forward. Desmond Hudson, chief executive of the Law Society, commented: “It is disappointing to see that the views of those who disagree with the ABI and the government are declared partial and biased by the MoJ. These changes will make it more difficult for those injured through the negligence of others to receive compensation.” It is believed that the £500 cap on fees for RTA claims of up to £10,000 is too low, given that it costs a minimum of £400 to get a live case and that the average cost of referral fees in such cases is £700, which could lead to firms turning away genuine claims as they are no longer financially viable. However, the counter argument to this is that the fees charged by solicitors will now more fully reflect the work and costs involved and that a reduction in the number of claims filed will lead to a more efficient system that will see genuine cases compensated more quickly. And, despite claims from the law industry that this will only serve to inflate the coffers of insurance companies, James Dalton, head of motor liability at the Association of British insurers (ABI) insists that this will lead to a better deal for motorists. Mr Dalton said: “This is very good news for customers who will benefit through lower car insurance premiums as unnecessary legal costs are removed from the system. The government is to be congratulated for grasping the nettle on this issue and resisting the scare-mongering claims of ambulance-chasing lawyers.” If your insurance is up for renewal, then the best way to ensure that you get the best priced policy is to compare quotes with MoneySupermarket as this alone could save you up to £300 on the cost of cover. And check out our other tried and tested money savings tips here.

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