While the Clementi report failed to crack down on the unregulated claims industry, lawyers warn that the claims standards council faces a tough task in introducing self-regulation, reports Jon Robins


For many commentators, Sir David Clementi’s apparent reluctance to take on the biggest menace of the post ‘access to justice’ era – the unregulated claims industry – was an opportunity missed.




Perhaps the former deputy chairman of the Bank of England did not have time to read the recent report from Citizens Advice, published a few before his own report (see [2004] Gazette, 17 December, 5). It revealed that over the past four years some 130,000 people had voiced concerns at their bureaux about no win, no fee deals.


James Sandbach, social policy officer at Citizens Advice, maintains that its research establishes that the deals offered by the likes of the original Claims Direct – where clients ended up with a tiny proportion of the damages – are not a thing of the past. Following publication of the Clementi report, he says the big question for the forthcoming White Paper on regulation of the legal profession is ‘whether the claims farmers will be in or out’.


‘We have said right from the start that they should be in,’ he says. ‘To leave them out would be a perverse policy outcome.’



Solicitors stung by The Accident Group collapse may also back regulation (see [2005] Gazette, 13 January, 1).



Despite Sir David’s silence on claims companies beyond issuing general principles on the regulatory net, moves to regulate are afoot.



A small number of claims management companies have found themselves under the scrutiny of the Financial Services Authority (FSA) for the first time (see [2005] Gazette, 6 January, 3). Regulation will apply where they are assisting in ‘the administration and performance of insurance contracts’, which includes ‘notifying an insurance claim to the insurer on a customer’s behalf or negotiating a claim against the insurer on behalf of a customer’. However, the FSA’s attentions will only be directed towards the 30-odd companies that sell insurance.



Next month, the Claims Standards Council (CSC), a government-endorsed independent body, will meet in Birmingham to discuss the industry’s own attempt to form a working system of self-regulation. It has submitted a draft code of practice to the Office of Fair Trading for approval.


Last year’s report by the Better Regulation Task Force recommended that the Department for Constitutional Affairs (DCA) should give the industry until December 2005 to self-regulate. If it failed, the task force said the DCA should impose regulation. In its response, the department indicated that this was the industry’s last chance before it took action, and said it wanted to see approval of the code by this September.


Lawyers are sceptical as to whether any industry-sponsored solution is likely to curb the excesses. ‘It’s not the sort of industry that is controllable by self-regulation,’ comments Professor John Peysner, who chairs the Civil Justice Council’s costs sub-committee and wrote the draft Blackwell Report that examined the case for regulation in the claims industry back in February 2000.


Twambley: 'claims companies flawed'

As an analogy, he questions whether taxi drivers, if they were not regulated, could ever be self-regulated. ‘Anyone can get in a car and drive it,’ he says. ‘The answer is that self-regulation wouldn’t work and therefore they are controlled by government.’ He argues that the would-be claims farmer needs no capital to set up shop. ‘All they need to an office, a table and chairs.’

Andrew Twambley, a senior partner at the personal injury lawyers’ network Injury Lawyers 4U and a partner at Manchester claimant firm Amelans, argues that the industry is unlikely to clean up its act voluntarily. ‘There will always be the unregulated cowboys and timeshare salesman who will do anything they can to screw the public and desperate panel solicitors out of their money,’ he says.


Mr Twambley contends that those companies that follow the traditional claims management business model are inherently flawed. In such cases, he maintains, accident victims are ripped off through overpriced insurance policies or unfavourable loan agreements or, alternatively, it is the solicitors who are ripped off on the medical reports. ‘That’s how they make their money,’ he adds.


Colin Ettinger, president of the Association of Personal Injury Lawyers, also maintains that any rigorous regime imposed by industry is unlikely to succeed. He has seen the draft CSC code.


‘If claims companies did operate that way, it is difficult to see how they could actually trade profitably,’ he says.


One of the biggest challenges for the CSC will be securing the support of such a disparate industry. Claire McKinney, the immediate past president of the Forum of Insurance Lawyers and a partner with Davies Lavery in Birmingham, supports the council’s draft rules. ‘But the rules and regulations need to be demanding and sophisticated, and I query whether they will act almost as a barrier to entry,’ she says. She argues that the industry will have to frame a regime sufficiently robust to combat unacceptable behaviour.


However, the proposed ban on cold calling, which has always been a practice repeatedly condemned by consumer groups, already prompted ‘a flood of people’ to leave the initiative. The council will also have to invest heavily in training to make sure members comply. ‘It’s great what they have done but if they can’t get claims management companies to demonstrate commitment, then they aren’t going to get over the first hurdle,’ she says. James Sandbach says the CSC is an ‘excellent initiative’, but for the fact that it currently represents a very small proportion of the market.


The CSC has eight members, three of which are law firms: leading national practice Russell Jones & Walker, which owns the revamped New Claims Direct, another member; Preston firm Anderson Eden; and Manchester’s Wingate Gregory Evans. A further 15 applications for membership are currently being considered. There are an estimated 350 claims management companies. The CSC’s steering committee includes former Court of Appeal judge Sir Philip Otton, former Law Society President Rodger Pannone and consumer champion Marlene Winfield.


So will the CSC be able to marshal such a a diverse and shadowy industry? Spokesman Andrew Wigmore reckons that some 60 companies and individuals – out of a database of 109 – will attend the February meeting. Such a showing would represent ‘a good share of the industry’, he says.


Insurers, including Norwich Union, have been reluctant to back an initiative that did not broadly represent the industry, Mr Wigmore admits, but now apparently they are back on side. ‘If everyone is happy to share the ethos going forward, then we will have a framework from which self-regulatory rules can actually work,’ he says.


Mr Wigmore makes it clear that it is in claims farmers’ interests to embrace the CSC. ‘The DCA has given everyone an opportunity to sort this out and, if they don’t, more fool them,’ he says. Is this the last chance for the industry? Definitely, he replies.


However, the code of practice is still being fine-tuned and the ban on cold-calling is again causing problems, not least because there appears to be some confusion as to what it actually means. ‘What is cold-calling?’ Mr Wigmore asks. ‘Is it door knocking, phoning someone up, or stopping someone in the street?’


Then, he adds, would a prohibition be considered anti-competitive by the competition authorities? He says there are 19 existing regulatory authorities that could have an effect on the way in which claims companies should operate.


But how will the arrival of the CSC help consumers? ‘If you want to find out about a company, you can have a look at our membership and if they aren’t there, the chances are they aren’t going to abide by any rules and therefore we would suggest strongly you should look somewhere else,’ Mr Wigmore says.


Russell Jones & Walker’s managing partner Neil Kinsella says the CSC needs the backing of government to make sure that the body can police the industry effectively and, in particular, ‘the extent to which failure to comply with the guidelines will render you unable to practice’.


‘I want to see the CSC have teeth and it can only have teeth if the government recognises its status,’ he says.


So how do you crack down on those less reputable companies that will refuse to buy into a system of self-regulation that prohibits, for example, cold calling? Mr Kinsella argues that there must be some kind of ‘citizen’s charter’ of objectives whereby consumers will not be bound by any agreement with an organisation that is not CSC, FSA or Law Society regulated. ‘You educate individuals about their rights and [in particular] their right to effectively repudiate an agreement regarding the management of a claim if it isn’t being handled by a regulated person’ he says.


Professor Peysner remains unconvinced that anything short of ministers taking on the responsibility themselves is likely to fail. He queries whether the council will raise sufficient funds to provide for a body that can effectively do the job required of it. Its proposed fees are just £5,000 a year for companies with a turnover exceeding £1 million through to £100 a year for individuals. The CSC is looking for an initial budget of £250,000 a year and once it is up and running, says it should bost about £60,000 a year to run


Professor Peysner says: ‘Basically the government has to bite the bullet but they seem extraordinarily unwilling to do it in the face of all the evidence. What worries me is that it will take another scandal before they decide it won’t work.’


Jon Robins is a freelance journalist