The government has revealed plans to investigate and possibly seek a ban on referral fees for personal injury claims in an attempt to curb the rising cost of car insurance.

Year on year annual car insurance premiums have been rising at a rate of as much a 40% every 12 months. The Office of Fair Trading (OFT) has revealed plans to investigate car insurance in the UK with this in mind, and will reveal their findings in December. If they find the industry has been operating in a non competitive way, further action will be taken by the official body.

The most interesting development on late is the government’s plans to tackle referral costs which it feels is having a direct effect on the rising cost of car insurance. Often motorists who have been involved in an accident are encouraged to make a claim on a “no win no fee” basis. The claim is then passed between a management company, insurance company and lawyer who charge each other for the claim referral, with the lawyers recovering their costs from the losing defendant. The upshot being that honest motorists are being hit with higher premiums to cover the cost of the high number of personal injury claims being made.

If the government is successful in their bid to put a stop to “no win no fee” claims, this is likely to lead to a decrease in the number of personal injury claims being made, helping to put an end to the compensation culture and the year on year increases in the cost of car insurance.