Claims management firms shut down

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Claims management firms shut down

The good news was reported far and wide – ‘Hundreds of claims management firms have shut following the introduction of tougher laws‘ – apparently, the number of registered companies handling accident claims collapsed from 2,435 in March 2012 to 1,700 in June this year.

But have those firms been closed down or have they just directed their attentions elsewhere? ‘Ceased operating in the personal injury sector’ does not necessarily mean stopped from trading and the number of new CMCs authorised actually increased in the year 2012/13. The Ministry of Justice’s Claims Regulation Unit has just published its annual report which confirms that the authorisations surrendered during the last 12 months far outnumbered the authorisations suspended or cancelled.

At the same time it is being reported that CMC’s overall turnover has topped £1bn. The referral fee ban seems to have prompted a mass exodus from the personal injury market, but the CMCs simply move on to other targets and into different markets. So the real picture is that whilst the number of CMCs operating in the PI market has fallen by 30%, their turnover as an industry overall has increased by 31%.

What does this mean for the public and for future accident victims in particular?

Curbing the ‘compensation culture’ was one of the stated targets of the government when they moved to ban referral fees together with their fight against fraudsters whom we were told are the cause of high motor insurance premiums – see, Whiplash Backlash.

No one could have enjoyed the constant stream of text, emails and cold calls asking: ‘Have you had an accident?’ and offering to recover compensation for personal injury even where no physical harm had occurred.

But will these calls and texts stop as a result of this fall in the number of claims companies operating in the PI market? Is this really a victory for the government in the fight against fraud or just a distortion of the true picture?

Justice minister, Helen Grant is certainly claiming victory when she states: ‘Ending these fees which fuelled a growing compensation culture has been an important step to reducing the cost of living for ordinary people – who have ultimately been footing the bill for them through their insurance premiums.’

But ordinary people have accidents too, and the steps taken go far beyond reining in errant CMCs and preventing motor accident fraudsters. Recoverable legal fees have been slashed to a level which may make cases uneconomical for solicitors to run, and this measure is to be extended to claims for workplace injuries and accidents in public places from the end of July – an area in which fraud had not been highlighted as a particular problem. The sweeping broom approach may have made it more difficult for claims companies to make a profit out of personal injury claims, but it has also severely restricted the ability of the ‘ordinary people’ Helen Grant claims to be championing to submit a personal injury claim at all.

Will cold call texts and other messages stop? Probably not. If the CMC’s have simply retargeted their operations then where is the incentive for them to cease: ‘Do you have a claim’ messages, but this time for PPI instead of PI?

Will CMCs suffer as a result of the referral fee ban? Well, there is no such ban in relation to PPI so if they are moving into that sector instead of personal injury then it’s hard to see how they are losing out.

Will access to justice have been improved? Almost certainly it will be more difficult to find a law firm willing to take a personal injury case on a conditional fee agreement if it is either of relatively modest value (less than £10,000) or has uncertain prospects on liability.

Are the CMC’s weeping into their coffee and searching the job ads? We very much doubt it.

So hundreds of firms who bombarded the public with adverts for compensation claims may well have voluntarily left the industry – but only to enter another and continue to bombard us from there. Meanwhile the real price of the “strong action to rein in the rogue firms” is to be paid by accident victims.