More to Axa's stance than meets the eye?

It's all about referral fees this week.

First Jack Straw waded in to the debate portraying himself as some kind of gallant knight charging to the rescue of the poor motor masses. Raising awareness of the problem at a national level is commendable but it's a shame he used it to try to gain some political leverage.

And then Axa jumped on the bandwagon and declared that it was no longer going to accept referral fees from personal injury lawyers. On the face of it, it looks like a very laudable move - the insurer appears to have taken a bold step and led where its fellow insurers refused to go.

But the interesting thing is that no other insurer would back Axa in its move which would suggest that they can't see the sense in it. To a man, the chief executives of these insurers said that in order for it to work, a ban on referral fees had to be legislated.

The management at Axa certainly are no fools and they are businessmen. Providing a return on capital is what they do. 'Doing the right thing' isn't often associated with business but that is what Axa is claiming to be doing to the tune of a couple of million quid.

Maybe I'm just a cynic but I find it hard to believe that Axa will just unilaterally 'do the right thing' without it making financial sense. Rumours are doing the rounds that Axa has an in-house legal firm that deals with personal injury claims and, it has to be assumed, pays referral fees to Axa. The rumour continues that Axa already owns or will soon own said legal firm.

Now, the suggestion, which has not been proved, is that were Axa in a position where it was referring the majority of claims it controlled to this legal firm, refusing to accept referral fees would have a negligible impact on its bottom line as the legal firm's profits would be going to Axa in a roundabout way anyway.

Complicated but you never know.

What is more likely, is that Axa, as a large and hungry motor insurer, saw the opportunity to gain huge exposure as a champion of the consumer and is gambling that increased policy count on the back of its stance would far outweigh any loss from referral fees.

Either way, the insurer's stance does not solve the problem of personal injury lawyers and the cost of claims. By not taking referral fees, Axa is simply ensuring that there is more money for legal firms to chase more claims.

Fundamentally, whatever the motivation behind Axa's decision, it needs the rest of the market to follow for it to work and unfortunately, based on the response so far, that is unlikely.