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Ten-fold increase in rogue
claims management companies
1 Aug 2011
by Robbie Dunmore
Nearly 350 rogue
claims management companies were closed down by the Department of
Justice in 2010/2011 compared to 35 in 2009/2010. This ten-fold
increase occured despite a drop in the numbers of new claims mangement
firm registrations which fell from 576 to 81.
The
MoJ Claims Management Regulation Unit, according to the Government, was
set up to protect the  public from claims
management
firms exploiting vulnerable consumers by over-selling expectations of
compensation pay-outs.
The
MoJ also talks of "a growing compensation culture [that] is paralysing
schools, businesses and community groups due to a fear of being sued."
Their
strategy to address this has included restructuring 'no win, no
fee' agreements "to discourage needless and excessive litigation" in
addition to "reviewing the ways [that] advertising is used by claims
management companies to attract business."
With
regard to the latter, the Head of the Unit, Kevin Rousell, comments:
"We have made it very clear to [claims mangement] businesses that we
are not going to accept any malpractice or attempts to take advantage
of vulnerable people. There will be no let up in the coming year.
Companies should remain in no doubt that if they breach the rules, they
will be closed down."
The
349 claims management companies that had their licences revoked in
2010/11 were either in breach of the rules or did not meet the
regulator’s
criteria for authorisation.
Misleading marketing, aggressive sales
techniques or even fraud were the reasons that the worst
offenders were shut down.
Throughout the 2010/2011 year, the claims management regulation unit
targeted numerous areas of rogue practice. These included misleading
marketing, unauthorised trading and failing to return fees paid by
clients.
The claims management regulation unit also targeted
unsolicited e-marketing, especially SMS text messages that many claims
managment companies were using for marketing purposes. The crackdown
involved working with Ofcom, the Information Commissioner,
the Telephone Preference Service (TPS), the Direct Marketing
Association, and representatives
from the mobile marketing industry to tackle these insolicited texts.
The
Unit worked directly with police forces and other law enforcement
agencies to investigate claims management firms thought to be involved
in fraudulent accident claims.
The
MoJ Unit also liaised with Internet Service Providers (ISPs) and credit
card providers to remove unauthorised websites and their payment
services.
Set
up four years ago, the Unit has worked to address the 'ambulance
chasing' practices of some claims management companies that pursue
injury victims admitted to hospital. The Government also acted to
reduce other types of unsolicited cold-calling practices, including
telephone calls.
Justice
Minister Jonathan Djanogly and numerous insurance industry stakeholders
have been anxious to address claims management company practices that
encourage speculative or fraudulent injury claims following road
traffic accidents.
There
has been a simultaneuous debate, sparked by Jack Straw's 'racket'
remarks, about the role of referral fees in car insurance and their effect on
premiums.
Few
have linked the two but it is the claims management companies that will
suffer the most if a referral fee ban is introduced. Indeed, a ban
would lead to the demise of many of them.
As
claims management companies provide no primary function that cannot be
done by an alternative, more qualified party, they are not an essential
component of the claims market. It is easy for genuine claimants to
identify their own injury lawyer if they need to pursue a claim without
needing to rely on a referral from an insurance company or claims
management company.
Similarly,
they can easily find their own credit car hire firm. Referrals to
uncompetitive credit car hire companies add £500-600 to the cost
of claims for every case, while referrals to expensive city lawyers can
add many thousands.
Referral
fees encourage these expensive referral patterns and claims management
firms rely largely on referral fees for their income.
A
referral fee ban will immediately lead to referrals to better value and
more appropriate service providers and the demise of many claims
management companies will undoubtedly diminish speculative and
fraudulent claims.
This
would be good news for motorists that are looking for some relief from
their ever-increasing car insurance premiums.
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