When it comes to policing claims management companies, there are too many regulators and not enough enforcement, writes Jeff Zindani


The news, recently reported on the front page (see [2007] Gazette, 30 August, 1), that unregulated claims companies are using unlawful practices to circumvent the Compensation Act 2006, will have come as no surprise to veteran personal injury practitioners.



On a daily basis, claimant law firms are being bombarded with a myriad number of 'marketing' initiatives, ranging from outsourced advertising to schemes aimed at particular target groups, all with the object of providing new claims. We know from the Ministry of Justice's (MoJ) own claims management regulator that several law firms have been referred to the Solicitors Regulation Authority (SRA).



The reality is that there has been a black economy of case-trafficking since the regulations contained in the Compensation Act forced claims companies to register for licences. The scale of the problem is perhaps greater than what the government and the SRA are prepared to admit. Given the fact that the market for claims companies is officially producing more than £190 million a year, it was unlikely that all unscrupulous practices would stop overnight.



The regulations were designed to clean up the industry. They were also seen by many personal injury firms as an opportunity for them to compete on a level playing field, away from cold-calling and street teams, to more old-fashioned and less aggressive forms of marketing. The reality is somewhat different because some of the claims management companies have now switched to more 'acceptable' tactics to get work. The cowboys are back.



More worrying are the complex commercial relationships which exist between some law firms and claims companies. Complex because they involve income streams which are not always declared, from medical agencies, after-the-event insurance providers and enquiry agents. The dependency that some law firms have on claims companies, well over the recommended SRA level of 20%, has in some instances created a culture of turning a blind eye to these activities.



The problem is that there are too many regulators and not enough enforcement. The MoJ's claims management regulator, the SRA and even the Financial Services Authority all have roles to play in ensuring that the consumer is not short changed. For example, why should a personal injury claimant be an income stream from referral to a medical examination and even at the end of the claim when they are referred to an investment adviser? We all know that commissions should be declared, but if the commissions are being received by a claims company, then there has to be greater transparency.



It may be old fashioned, but whose interests do we serve? The new Solicitors Code of Conduct puts the integrity and independence of solicitors as a new overriding objective. It is difficult to see how this fits into the ever-changing personal injury world.



In many ways, the situation could become even more acute if the MoJ's proposals on streamlining the claims process - Treasury speak for cost cutting - become a reality, as the pressures on the claims industry force them to look at other ways of deriving income. In simple terms, there will no longer be much meat on the bones and third-party income streams will be central to survival.



What is needed is a systematic review of the role of such organisations, both regulated and unregulated, to see if they are any longer in the interests of the consumer - after all, why regulate a sector that may no longer be required?



Jeff Zindani is a solicitor and managing director of personal injury specialist firm Forum Law in Solihull