Written evidence from Claims Standards
Council (CMI 36)
INTRODUCTION
The Claims Standards Council [CSC] was established
in 2004 to unite the claims management industry and assist in
its regulation. The CSC is the trade association representing
claims management businesses, and aims to ensure that the claims
management sector is fairly and effectively promoted to lawyers,
insurers, and the Government, and to ensure a balanced view of
the sector. The CSC has 126 members who actively operate claims
management services in personal injury and financial services.
A full history of the CSC can be seen here—http://www.claimscouncil.org/about
WHAT IS
A CLAIMS
MANAGEMENT COMPANY—BACKGROUND
The term most commonly used to describe claims management
companies is "Ambulance Chaser"; an American term first
presented by the Daily Mail in an article describing the
two most famous claims management companies, Claims Direct and
The Accident Group [TAG]. These two companies epitomised the types
of business that highlighted the potential for abuse and fuelled
the emergence of many similar organisations.
To put the activity in context, it is important to
understand why this industry emerged. In 2000 legal aid was withdrawn
and a system known as conditional fee arrangements - "no
win no fee" - was implemented for consumers to fund the costs
of making claims. This meant that the losing side of a personal
injury claim had to cover the costs of both sides, and consumers
were encouraged to take out insurance to cover these costs. Claims
Management Companies [CMCs] emerged and promoted themselves to
consumers offering advice to people wishing to make a claim and
referring them on to a solicitor.
The techniques used by CMCs to market the opportunity
to make a personal injury claim were misleading the public into
believing they could make money easily. They used aggressive marketing
techniques and even suggested people could make false claims with
little or no risk. Many consumers, far from being compensated,
ended up owing money to the CMCs.
Naturally, the idea of making huge profits from the
activity of claims marketing and management attracted many unsavoury
and unscrupulous individuals who very quickly understood that
there were no controls or regulation to stop them.
There are many case studies highlighting the abuses,
and the CSC were instrumental in bringing these to the attention
of the press and the Government in an attempt to try and self-regulate
the industry in 2003.
An example which encapsulated the problem involved
an individual standing on a street corner or outside an A&E
department encouraging anyone to consider making a claim simply
by offering them £100 in cash to sign up to pursue one. Most
people encouraged by a bribe of £100 cash would sign up.
That sales person would then take the lead and sell it to a solicitor
for anything up to £700, clearly making a tidy profit. This
was commonplace outside A&E departments across the UK and
clearly defines the terminology "Ambulance Chaser".
This malpractice and others led - rightly - to a perception of
a "compensation culture" and to the collapse of Claims
Direct and the Accident Group.
The CMCs were quite rightly in those days described
by law firms and the insurance industry as abusing the system
- but it was clear that someone was buying these leads and the
blame for encouraging and fuelling this activity at that time
has to lie at the door of the solicitors who continued to buy
these leads with little or no investigation into how they were
obtained.
THE PROBLEM
WAS CLEAR
The claimant
had become a commodity sold to the highest bidder.
There were
no rules on procurement of a claimant.
There were
huge misleading marketing statements and activities which broke
every ASA rule.
The current
system did not work - and in many cases claimants were left owing
fees to CMCs.
Following David Arculus's report—"Better
Routes to Redress" it was clear the Government needed to
bring in some sort of regulation. Initially it was hoped that
self-regulation would work but following an assessment by the
DCA of the ability of the trade body [CSC] to self-regulate it
was crystal clear that regulation was needed urgently if the consumer
was to be protected.
In that assessment, by Mark Boleat it also became
clear that Claims Management Companies were not the only cause
of the problem. In his report he rightly stated:
"A major reason for the increase in the proportion
of actual claims to the number of potential claims is the reforms
to the claims process introduced in 1999 and 2000. Claims management
companies were not an independent factor in increasing the number
of claims, but rather were the means by which a market opportunity
was exploited."
The decision to bring in regulation in 2005 was welcomed
by every stakeholder in the personal injury sector, and especially
by the firms that were not abusing the current system but had
worked to bring some self-regulation to the industry. The leadership
by firms that joined the CSC helped the Government understand
the various issues that were often misrepresented in the press
and by other stakeholders. Notable for their contributions were
claimant law firm Russell Jones & Walker and claims management
company Accident Advice Helpline, both significant organisations
who firmly believed that regulation was critical if the consumer
were to be protected from the malpractices of some and who recognised
that the entire sector were to blame for the emergence of the
abuses.
The Government found an innovative, low cost and
effective way of bringing in regulation that worked and could
be implemented quickly.
"Imaginative" is not often used to describe
the civil service, but in the case of implementing the "Compensation
Act 2006" it was both imaginative and effective. It was only
able to do this by setting up a Regulatory Consultative Group
of stakeholders who met regularly to help the government design
and implement regulation that could work. It also helped other
stakeholders fully understand the processes and how CMCs operated
- a surprising statement considering every solicitor represented
by APIL and MASS had relationships with introducers of one kind
or another.
The result was unique and effective and standards
rose quickly. The Policy Director of the Claims Standards Council
summed up the effectiveness of the regulation in a report by the
Better Regulation Executive published in October 2009.
"The regulation has teeth - it is not just
regulation for regulation's sake and this only happened because
of the engagement with stakeholders".
Since 2006 - much has changed in the sector and the
activity of claims management is sophisticated, with only very
small pockets of abuse - usually criminal "Cash for Crash"
cases.
The legal sector is now the biggest advertiser in
personal injury with Injury Lawyers for You and National Accident
Helpline the biggest spenders in the sector.
It is clear that CMCs have helped people obtain compensation
to which they were entitled who would not otherwise have done
so. They have therefore contributed to access to justice.
Today every part of the sector operates claims management
activity.
- 1. Traditional CMCs still promote services
through TV advertising and websites etc.
- 2. Law firms operate websites and outsource
marketing services to all types of advertising and marketing agencies.
- 3. Law firms join marketing collectives -
IL4U, NAH, and Claims Direct.
- 4. Insurance brokers use telesales services
to secure personal injury clients.
- 5. Accident management companies sell personal
injury leads to panel solicitors in the same way as a claims management
company.
We therefore find the recommendation made by Lord
Young to restrict or ban advertising inappropriate and ineffective,
especially as both would have a critical impact on any service
offered to the consumer and be unenforceable anyway. Clever marketing
people will only find another route to obtain clients. You also
have to consider that the consumer is now very well educated in
their rights and entitlement.
The idea that you can ban referral fees is also misguided
- the market has developed in such a way that it would be possible
to get round any such regulation. These fees are part of the marketing
process that allows solicitors to outsource cost-effectively their
new business function. Referral fees are paid to everyone in the
supply chain including insurers who receive significant referral
fees from their partners. For example, insurer A will receive
a fee for passing onto a third party firm a lead for a claim -
so clearly the insurance sector is comfortable with this process.
Claims Process Reform - reducing costs
The MOJ Road Traffic Accident [RTA] portal has helped
reduce legal costs in the personal injury process significantly,
and continued developments by outsourcing firms and the soon to
implemented ABS structures mean this market will continue to develop
and be commoditised. Ultimately swift and cost effective services,
already being demonstrated by the likes of Judicata, Sentinel
Alliance and other legal process outsourcing companies, will enhance
'Access to Justice' for the consumer.
Lord Young's and Lord Jackson's reports are out of
date and out of touch with what has happened since 2005-06 - the
market has matured and will continue to develop without the need
for costly unnecessary interference from the legislator.
January 2011
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