Axa UK will no longer accept payments from personal injury lawyers for policyholders’ details, as the country’s Information Commission launches an investigation into whether the so-called “referral fees” practice breaks data protection laws.

While stating that Axa has “never sold customer details to personal injury lawyers or accident management companies”, its UK group CEO Paul Evans says Axa “will no longer accept fees from personal injury lawyers when we put our customers in contact with them to pursue valid claims notified at the time of an accident”.

A ban on referral fees was recommended by Lord Justice Rupert Jackson in his review into civil litigation funding, which formed the basis of a Justice Bill backed by the UK Government.

But the Government chose not to ban referral fees in the Bill, outraging Labour MP and former Labour Party Justice Minister Jack Straw, who has pledged to introduce an amendment.

Mr Straw says the fees are to blame for the rising cost of motor insurance in the UK.

“It’s become a huge racket,” Mr Straw says. “The insurance companies are complicit in this. They should and could have said this is outrageous.”

Insurers, who are believed to receive between £200 and £1000 ($300-$1499) for each referral, are expected to defend allegations that the practice breaks data protection laws by pointing out that they warn customers on renewal forms that their information could be passed to third parties.

But Axa’s Mr Evans says referral fees “have only served to promote an even greater number of injury claims” at a time when the incidence of road accidents is decreasing.

“It is unfair and unsustainable that drivers are being disadvantaged by exaggerated injury claims which drive up the cost of insurance,” he added. 

Axa estimates that around half of the recent increases in motor insurance premiums are related to the rise in bodily injury claims.

Echoing Axa’s move, Allianz UK CEO Andrew Torrance has called for a “market-wide” solution to tackle referral fees.

“This issue will only be effectively eradicated if there is a market-wide solution, and I believe this is most likely to come via regulation or some other mandatory instrument,” he said. “This regulation needs to be drawn broadly enough to prevent current payers of referral fees adjusting their business models to achieve the same effect as today via a different mechanism.”

The Association of British Insurers supports a ban on referral fees, while UK Justice Minister Jonathan Djanogoly says that the Government is “looking at” the issue.