The payment of referral fees in personal injury cases will be banned in a bid to tackle rising insurance costs, the Government has said.
Justice Minister Jonathan Djanogly said the no-win, no-fee system was "pushing us into a compensation culture in which middle men make a tidy profit which the rest of us end up paying for through higher insurance premiums and higher prices".
The announcement came as the consumer watchdog said it was putting motor insurance under the spotlight after drivers faced average premium increases of up to 40% in a year.
The Office of Fair Trading (OFT) has issued a call for evidence as it looks to establish if any competition or consumer issues need to be addressed to improve the motor insurance market.
Referral fees are incurred when a no-win, no-fee claim is passed between claims management firms, insurance companies, and lawyers.
Hundreds of pounds can sometimes be paid out as lawyers can claim the cost of referral fees back from the defendant or their insurance company if they are successful.
Mr Djanogly said: "Honest motorists are seeing their premiums hiked up as insurance companies cover the increasing costs of more and more compensation claims.
"Many of the claims are spurious and only happen because the current system allows too many people to profit from minor accidents and incidents.
"Referral fees are one symptom of the compensation culture problem and too much money sloshing through the system."
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