Clampdown on the compensation cowboys

Tougher regulation is needed to protect the public from rogue claims management companies (CMCs) that plague people with nuisance calls, charge high fees and push up the cost of insurance for honest customers, insurers said today.

Last year (2014/15) nearly a quarter (23%) of all CMCs faced some sort of regulatory intervention from the Claims Management Regulator, either being given a warning or having their authorisation cancelled. This has increased from 18% in 2012/13.

The Association of British Insurers (ABI) is proposing oversight of CMCs be transferred to a tougher regime under the FCA, since the current system is failing to provide enough of a deterrent to rogue firms.

The need for an overhaul is highlighted by:

• The continuing high levels of cold-calling still disturbing the public. Recent ABI research found 83% of people have been contacted by a CMC encouraging them to claim compensation, for personal injury or other financial loss. 92% said that the contact had no relevance to them.

• So far this year the ICO has received almost 49,000 calls about nuisance communications relating to accident and PPI claims.

• The potential involvement of CMCs in fraud. The Insurance Fraud Bureau currently has 56 CMCs under investigation as part of staged motor accident scams.

In its submission to the Government’s review of Claims Management Regulation, the ABI points out that:

There need to be more effective sanctions against any CMC employee found guilty of serious breaches, and all employees should be subject to an ongoing training and competence regime set by the regulator.

CMCs should be obliged to declare the source of the claims they submit and provide data on how many are not upheld.
The FCA would be better placed to measure the wider economic impact of CMCs, by collecting data on the volume of claims they are involved in.
It remains unusual for a regulator to sit within a Government department rather than as an independent body

General Insurance Manager at the ABI, Rob Cummings, said:

“Consumers have the right to be represented by whoever they wish, but no one should be pressured into making a compensation claim. For too long some claims management companies have helped fuel a compensation culture through nuisance calls, misleading adverts and high charges. By encouraging frivolous and fraudulent claims their actions have led to higher insurance premiums for honest customers.

“The continuing high levels of nuisance calls and speculative claims some CMCs are responsible for demonstrate the urgent need for a regulatory regime which is fit-for-purpose. Tougher supervision should drive the cowboy operators out of town and ensure that honest customer do not end up footing the bill for the rogue firms.”