Justice Minister Lord McNally said the government supports the move to ban insurers from referring customers to personal injury lawyers in exchange for a fee.
As part of wider reforms, the Coalition Government is looking at tackling the issue of referral fees, McNally told the House of Lords.
Lord McNally was responding to a question from Lord Sheikh of Cornhill during a debate. He said the government was trying to put together a total ban as suggested in the review of civil litigation undertaken by Lord Justice Jackson.
The government preferred the option to bring in more transparency as also suggested by the Transport Select Committee and the Legal Services Board, he said.
Over the last decade, personal injury claims payout has doubled to £14 billion although number of road accidents have declined, said Lord McFall of Alcluith while participating in the debate.
The debate was initiated after the lucrative nature of these deals was revealed by former Justice Secretary and Labour MP Jack Straw at the end of June .
“One of the factors to look at is the unbelievable increase in whiplash claims. It is far too easy to find, in even the most minor of accidents, that whiplash is subsequently claimed along with quite substantial damages”, said Lord McNally.
It was “unethical” and “offensive” that insurers were charging referral fees to solicitors for clients’ names.
The ABI has been calling for a ban on referral fees across the board, not cherry picking insurance companies, but for Personal injury lawyers, management firs, garages and the police, said Malcolm Tarling, senior media relations officer at the Association for British Insurers (ABI).
“The practice exacerbates the compensation culture. It is a symptom of a deep-rooted problem. If changed genuine claimants will get paid compensation more quickly and the system will be fairer in that it will not be paid for by all customers in higher insurance bills,” said Mr. Tarling.
“Our members recognise it is a culture that needs to be broken. We hope the government will take action through a separate piece of legislation,” he added.