The HM Treasury and the Ministry of Justice have commissioned a fundamental review of the regulation of Claims Management Companies (CMCs). The review aims to engage with a wide range of stakeholders and asks for input from interested parties by Friday 13 November 2015.
Despite an initial fall from 2012/13 to 2013/14 (from £354m to £238m), CMC turnover has, from 2013/14 to 2014/15, increased (to £310m). This can be attributed to the development of “LASPO compliant” CMC models enabling CMCs to operate profitably within the confines of the new legislation.
The Government is very concerned. Their aim to reduce claim frequency and curb the undesirable behaviours perpetrated by CMCs has clearly not materialised. The Government intends on addressing concerns that some CMCs continue to fuel speculative claims and create a significant social nuisance through unsolicited calls and texts, and launched a call for evidence on 2 October 2015. Justice Minister Lord Faulks summed up the Government’s concerns:
“The Government is taking action to make sure people aren’t having their time wasted or being taken advantage of by the greedy practices of some firms.
We want to be certain that we are doing all we can to get consumers a fairer deal and rid the industry of rogue behaviour.”
Economic Secretary to the Treasury, Harriett Baldwin said:
“The Government is clear - CMCs must be properly regulated. That is why we announced a wholesale review of the industry at the Summer Budget. We will not tolerate rogue behaviour.
That is why today we are looking at how to ensure that consumers receive all of the money they are owed by capping the amount claims management companies can charge and cracking down on nuisance calls.”
The review is being led by Carol Brady, Chairman of the Chartered Trading Standard Institutes board, who has begun consulting key stakeholders. She is seeking evidence on how the claims management market is working, what improvements can be delivered through changes to regulation, and where other solutions may be required. This evidence will be used to assess the powers and resources required for a strengthened regulatory regime and will consider what other reforms may be necessary.
A consultation on proposals will be published later this year. It is expected to include capping the amount CMCs can charge clients in winning cases. This follows recent reforms which have included reinforcing the regulator’s enforcement tools with a new power to impose financial penalties on CMCs, as well as naming firms which are under investigation or subject to recent enforcement action. In August 2015 the CMR issued its first fine – a £220,000 charge against a CMC making millions of cold calls. Since 2010 the regulator has removed the licences from over a thousand firms, including 300 last year. The review is due to be completed by early 2016.
A review on this scale is long overdue. Claimant representatives have - despite their protestations against the majority of recent reforms - repeatedly demonstrated that they are extremely adaptable to change. Consolidation of the market has enabled the canniest of CMCs to absorb the business left behind by the casualties of the LASPO reforms. This has improved the efficiency with which these claims are brought and, in this market, efficiency generally also means frequency.
This will continue for as long as claimants remain a commodity valuable enough to be bought and sold. The reduction in the fixed fee from £1,200 to £500 clearly does not go far enough; there is still margin in the current fee to enable these behaviours to continue.
More radical reform is needed to dispel the compensation culture that – despite the Government’s efforts to date with LASPO and related legislation – still exists. In order to do this, the Government needs to look at the circumstances for when and how a potential claimant can (or, perhaps more importantly, cannot) claim compensation. It will take a brave Government to make any sweeping changes to our civil justice system, but with the background context of households spending a large proportion of their income on motor insurance and the very public commitment to reduce the cost of living, this may not be just a pipedream.
The Government’s focus is very firmly on the consumer, and the statements from Lord Faulks and Harriet Baldwin make it clear that the Government is not willing to allow the status quo to continue. The will to conduct a “wholesale review” and be “certain that we are doing all that we can” indicates a real determination to tackle the problems evident in the claims farming industry.
It is natural – particularly after the LASPO reforms - for the insurance industry to remain sceptical about a potential sea change. However, we must not lose sight of the opportunity to make insurers’ voices heard, and to provide Carol Brady with the information she needs to make far-reaching recommendations to the Government so that this problem can be tackled effectively.
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