Home / Insight / Client Alert: CMRU Annual Report - Personal Injury CMCs Back Under the Spotlight

Client Alert: CMRU Annual Report - Personal Injury CMCs Back Under the Spotlight

14/07/2015

The Claims Management Regulation Unit (CMRU) released its annual report on 13th July providing an important overview and stocktake of the CMC industry over the last 12 months. The CMRU also issued a “Referral fee ban guidance note” detailing non-compliant business models which have presumably come to their attention over the last 12 months.

Whilst a great deal of focus is still placed on PPI claims, personal injury features highly within the report. After a recent decline in the CMC PI sector, there is some concerning data within this latest report indicating renewed growth over the last 12 months. This has undoubtedly been partly due to considerable activity in the noise induced hearing loss (NIHL) arena but also in PI more broadly.

Whilst the overall CMC industry turnover increased by 11% in the 12 months to 30th November 2014, the PI sector increased by 27%. In 2012/13 PI CMC turnover stood at £354m. In 2013/14 that reduced to £238m – a reduction that we hoped would start a trend. However, in 2014/15 that number has bounced back up to £310m. It is a telling statistic that applications in the latest reporting year from businesses applying to operate in the PI sector were up almost two thirds (64%) over the prior year.

The CMRU claim that this is “mainly due to the largest CMCs increasing their market share, as well as the smaller CMCs that had suspended claims activity immediately following the referral fee ban, returning to the market with new compliant models”. We do not doubt that this is true but if you read between the lines, the reality is that CMCs have developed new ‘LASPO compliant’ models and can now transfer a claimant to a law firm without falling foul of the legislation. It has taken 12 to 18 months for CMCs and lawyers to adapt but adapt they have and the data suggests that CMC PI activity is once again on the increase.

Whilst many of these models are indeed LASPO compliant, the spirit and thrust of that legislation was to reduce the number and cost of personal injury claims for the benefit of the end premium paying consumer. It must now be questioned whether s56 of LASPO is still ‘fit for purpose’ and if the time has already come to strengthen the legislation and close some of the existing loopholes. It also once again raises the question as to how the finances are working in the current portal claims regime. Notwithstanding a reduction in the fixed fee from £1,200 to £500, there is still clearly more than enough financial oxygen to support and grow a CMC industry. We may therefore, once again question whether there is too much money in the system against a backdrop of a re-emerging CMC market.

This all leads neatly on to last week’s Budget where George Osborne announced the following:

“This Budget announces a fundamental review of the regulation of claims management companies (CMCs), led by the Chairman of the Chartered Trading Standard Institute Board Carol Brady, which will report to HM Treasury and the Ministry of Justice in early 2016. In addition, there is also a case for reform of the fees that CMCs charge consumers, particularly in those instances where consumer complaints fall within the remit of the Financial Ombudsman Service. Therefore, the government will bring forward proposals for the introduction of a cap on the charges that CMCs can apply to their customers, and will consult on how this will work in practice”.

We welcome this further planned intervention particularly in the light of recent Sunday Times coverage of alleged practices that fuel both frequency and fraud. We also have on-going work by the Insurance Fraud Task Force who are due to report later this year.

The capping of fees mentioned by the Chancellor appears to link more into the PPI space than personal injury. The CMRU report confirms that one of the biggest single areas of complaint against CMCs was the level of fees charged at the conclusion of PPI cases. PI CMC fees will be harder to identify and then cap, particularly those operating within an ABS wrapper.

Keoghs View

Our perception for some months now has been that PI CMC activity has been on the increase. The CMRU report does nothing to dispel that. Following a period of decline post LASPO, the CMC market has adapted to the legislation and has brought forward LASPO compliant models which are allowing the industry to once again expand. The CMRU can only apply the legislation as it stands. The ease with which many now circumvent the ban suggests to us that LASPO will need to be strengthened if frequency is to be tackled to meet the last Government’s ambition. It is a truism of course, that CMCs only exist as claimants remain a valuable commodity which can be bought and sold in the market. It is perhaps time for more radical reform for RTA portal claims if we are to remove frequency and cost and facilitate lower premiums for hard pressed consumers. We therefore welcome further Government led intervention in this sector and hope that a post LASPO review will highlight those areas of abuse which still need attention.

RTA personal injury compensation is still firmly on the Government’s radar in one guise or another and Keoghs will continue to engage Government in this important policy area and keep clients appraised.

Author

Steve Thomas

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