The claims management sector has undergone substantial change over recent years. This is due to government legislation, in particular the 2012 Legal Aid, Sentencing and Punishment of Offenders Act (LASPO), and regulatory reforms such as the responsibilities of the Claims Management Regulator (CMR) being passed to the Financial Conduct Authority (FCA) in 2019.
The Association of Consumer Support Organisations (ACSO) has complied a report with the aim of better understanding the changing nature of claims management companies (CMCs) and the CMC sector, as well as the implications upon consumer outcomes and access to justice.
The key findings of the report are as follows:
- CMCs can play an important role in helping consumers to secure redress, in particular those who may otherwise be unwilling or unable to bring a claim themselves.
- The sector has been subject to intense scrutiny over recent years and continues to suffer reputational damage owing to the poor conduct of some CMCs.
- Numerous market dynamics have led to a considerable contraction in the number of authorised CMCs, including as a result of the dissolution of the CMR and the more robust regulatory framework introduced by the FCA in its stead. In addition, the impact of LASPO led to a reduction in the size of the personal injury (PI) CMC market as it became an offence for CMCs to pay or receive payment for a referral of PI cases.
- A longstanding charge against lead-generating CMCs is that they commonly engage in 'cold calling', where a firm makes unsolicited phone calls to individuals to sell services. Since amendments to the Privacy and Electronic Communications Regulation Act were implemented, there has been a considerable fall in the number of nuisance calls and texts from CMCs, particularly those related to accident management and payment protection insurance (PPI) claims. For example, between 2017 and 2021 there has been an 88 per cent reduction in the number of PPI nuisance calls and texts reported to the Information Commissioner's Office (ICO), from 5,883 to 697. Likewise, the number of accident management nuisance calls and texts has decreased from 25,196 in 2017 to 5,902 in 2021; a reduction of 77 per cent.
- In November 2021, the FCA announced a fee cap of between 15 and 30 per cent for CMC charges related to financial services claims. The Solicitors Regulation Authority (SRA) has announced its intention to follow the FCA's approach in capping the fees law firms charge for such claims management work. This is expected to reduce further the number of participants in the CMC sector and result in market consolidation.
- The 2018 Civil Liability Act, and the creation of the Official Injury Claim (OIC) portal, has led to concerns it will be become a "CMC's charter", which will lead to an increase in poor behaviour from CMCs as firms look to offer services to claimants. Despite the limited availability of data, initial figures from the Motor Insurers Bureau (MIB) found that of the 114,077 claims that were started via the OIC portal since its launch, only 209 (0.1 per cent) were represented by CMCs. Moreover, with the greater oversight of CMCs provided by the FCA, coupled with the substantial contraction of the CMC sector and the reduced levels of general damages offered to consumers, the incidence of any such poor behaviour is likely to be limited.
The value of the sector in ensuring access to justice is reliant upon an effective regulatory and supervisory regime, whereby well-documented areas of malpractice associated with CMCs, such as cold calling, excessive charging, offshore activity and phoenixing, have been addressed. It is essential that the FCA continued to engage with CMCs and the wider sector, including organisations such as ACSO, to help drive better consumer outcomes, eradicate malpractice and identify best practice within the CMC market.