With Whitehall rejecting the claims standards council as a future regulator, Jon Robins looks at its role and the other possible contenders to oversee the combustible claims industry

The Claims Standards Council (CSC) has always had its critics among claimant personal injury lawyers. But the legal profession’s objections to the industry’s self-regulation initiative pale into insignificance compared to those levied by some of the claims management companies themselves.


The body has been on the receiving end of both verbal and physical abuse – including death threats and break-ins at its HQ – from the dodgier end of a burgeoning industry resistant to attempts to curb their excesses. Last month, someone decided to make their feelings felt by sending in a paving slab, presumably an ironic gesture towards their ‘slip-and-trip’ clients, via the CSC’s freepost service. ‘The slab was beautifully wrapped,’ says Andy Wigmore, the council’s policy director. ‘I thought that it was a belated Christmas present.’ It was a prank that cost the CSC £400 in postage.


It has not been a great time for the council of late. Over the past few months, the body has been busy lining itself up as a future regulator of the claims industry being set up by the Compensation Bill, only to be rejected by the government’s independent consultant Mark Boleat. The report identified four major steps that the council needed to make – ‘preferably simultaneously and with some urgency’ – if it wanted to be in the running.


These were: introducing ‘proper governance arrangements’; upping its membership; developing and securing approval for its code of practice; and obtaining resources. The total operational costs for a regulator were reckoned to be between £1.5 million and £2.1 million according to the Boleat report, plus one-off set-up costs of £500,000.


Prior to publication of the Bill towards the end of last year, the group (which was at first jokingly described as ‘three men and a photocopier’ when it started) went into media overdrive to impress on the public and politicians alike that it really meant business. After some time humming and hahing about whether to take the step, the CSC was seeking designation under the Bill to regulate the industry.


However, the CSC, with no regulatory teeth of its own at present, was limited in what it could do other than expose what it considered to be unacceptable behaviour. That included companies marketing services to children in hospitals or GPs’ surgeries, via advertising literature where youngsters could while away a few anxious moments completing a brain-teaser and ringing words and phrases such as ‘compensation’ and ‘claim today’.


Such leaflets included NHS branding and were found by the council in 60 out of the 114 accident and emergency departments it looked at. The CSC also took offence at a campaign run by another company in The Sun newspaper which boasted: ‘We are so confident that we can win your claim, we will give you an immediate £250 cash advance.’ The CSC complained to the Advertising Standards Authority, but the complaint was not upheld, as the advert did not break the law. One complaint against another claims manager whose advertising implied a link with the NHS was upheld.


Despite its high profile – and the fact that nobody else seems interested in either representing or regulating the sector – the group failed to persuade Mr Boleat that it could handle the job. Members of the House of Lords, during the debate on the Bill earlier this year, also seemed unconvinced. ‘It should have been obvious to the government from the beginning that it is not an appropriate body,’ the Liberal Democrat peer Lord Goodhart said. Constitutional affairs minister Baroness Ashton said she had not ‘ruled out’ the Financial Services Authority (FSA) as a potential regulator of claims managers, adding that she had a ‘completely open mind’. Lord Hunt of Wirral, chairman of the financial services division at City firm Beachcroft Wansbroughs, said he preferred the FSA, describing its approach as one of ‘individuality, impartiality and integrity’.


The CSC is effectively run by chief executive Tony Burns-Howell and Mr Wigmore, with its council comprising the former Lord Justice of Appeal Sir Philip Otton, Marlene Winfield, a former adviser to Lord Woolf and member of the Civil Justice Council, and Fraser Whitehead, a partner at national claimant law firm Russell Jones & Walker and Law Society Council member.


So where does the report leave the group? ‘It examined the CSC as it was and what it needed to do, and the conclusion is that we are a “bridge” between those claims management companies that want to be regulated and the regulator,’ Mr Wigmore says, putting a positive spin on things. ‘That “bridge” bit is really important because you need a way of encouraging the market to understand what’s going to happen.’ The CSC, he says, will be a trade association and ‘the eyes and ears of the regulator’.


He adds: ‘We still wanted to be considered to be “the regulator”, but there is absolutely no way in the world that was going to be a possibility within the time-frame,’ he concedes. The CSC has some 173 member organisations, including 41 law firms. Its largest members include the AA and Accident Advice Helpline, which both handle more than 10,000 personal injury cases a year, and Keypoint, which deals with 50,000 endowment cases a year. Its main work has been developing a code of practice, operating a complaints system, and consumer education.


So why should the CSC not take over the job of regulator? ‘The report indicated what I have always felt, that the CSC was not likely to be a suitable regulator,’ comments John Peysner, professor of civil justice at Nottingham Law School, who chairs a sub-committee on legal costs for the Civil Justice Council. ‘The industry was not mature enough and there was no track record of businesses that have been running for a long time. The government has to bite the bullet and have a proper frontline regulator – whether it is the Financial Services Authority or whatever.’


Manchester law firm Amelans, which is behind the solicitors’ marketing initiative InjuryLawyers4U, has never been optimistic about the prospects of the industry being able to sort out its own problems. ‘It is like a whole group of thieves ganging together and deciding not to do any domestic burglaries any more, and promising to just do commercial burglaries as a code of honour,’ quips partner Martin Cockx. He and partner Andrew Twambley maintain that the business model some claims management companies employ is exploitative and the charging structures unclear to consumers.


Mr Cockx adds that the firm has ‘a lot of respect and a lot of time for the people behind the council… But it is like trying to herd cats’.


The disparate nature of the claims industry means it has proven difficult for the CSC to persuade some companies to sign up. ‘It is not possible to estimate precisely what share of the market CSC members have – a reasonable estimate is between 35% and 55%,’ states the Boleat report. Significant non-members include InjuryLawyers4U, the National Accident Helpline, the RAC, as well as the Law Society-endorsed Accident Line. The report assumes the there are some 500 claims management companies, although Mr Wigmore disagrees. ‘I have only ever found 240 true claims companies,’ he says. ‘I think they are reducing in number by the month. I’m starting to see a massive reduction in the activity.’ A recent report by analysts Datamonitor predicted that the number could fall to fewer than 150 after regulation is introduced.


But Mr Cockx reckons there was little consensus among members over big issues, such as whether to ban cold-calling. He claims there are certain companies whose ‘whole business model’ depends on direct approaches to the public.


So what body should be the recipient of what Mr Cockx describes, in football terms, as the ‘hospital pass’ to regulate a notoriously scandal-prone industry? ‘Anyone who can do the job properly and who is independent, has sufficient funds and can make sure that law and regulation is complied with,’ suggests Neil McLaughlin, president of the Forum of Insurance Lawyers. That, as he says, could potentially be a whole host of bodies including the Department for Constitutional Affairs (DCA), the Office of Fair Trading, the Law Society and the FSA. ‘We have never been emotionally attached to anyone, as long as they are independent and can deliver effective regulation for an industry that, quite frankly, has not covered itself in glory over a number of years,’ he adds.


The DCA says there is provision for it to take over regulation of the sector as the ‘ultimate sanction’ in the Compensation Bill, but that no decision has been made on this. The Bill is expected to go through Parliament before the summer break, with some sort of regulation in place by October.


An FSA spokeswoman says it has no view on the issue. As far as the Law Society is concerned, the Regulation Board has recently ruled out seeking the role of regulating claims managers for the time being (see [2006] Gazette, 13 April, 8). It has told the government that it would prefer to see a free-standing regulator along the lines of the Council for Licensed Conveyancers.


The interesting scenario, looking ahead, is what happens if the DCA is forced to take on the regulatory role itself in the absence of any other contenders. It will not want to do this indefinitely and the issue potentially becomes more complex once the DCA’s planned legal services reforms come into force (probably in 2008).


This will see the creation of the legal services board as the oversight regulator for the entire market, but it is likely to have backstop powers to regulate directly any particular part of that market. This will make all the existing legal professional bodies nervous – their strong wish is that the board sticks to an oversight role and does not go beyond that remit into direct regulation.


The Association of Personal Injury Lawyers (APIL) has been pushing for regulation since publication in February 2000 of the Blackwell report on non-legally qualified claims assessors and employment advisers, which was drafted by Prof Peysner. Indeed, APIL’s new president Richard Langton ruffled the CSC’s feathers this month with comments that many claims managers ‘would not survive the cost and complexity of regulation’.


‘There needs to be a good strong regulatory framework,’ comments APIL chief executive Denise Kitchener. ‘We have to control activities of the claims management companies which can cause harm and uncertainty through, for example, cold-calling, but also we need controls relating to charging structures. The vast majority of people only ever claim compensation once in their lives, and they have no knowledge of the system and how it works. That makes them more vulnerable.’


But, as she points out, it is not just a problem for the legal sector and personal injury; in particular, any future regulation needs to capture claims relating to the scandal over mis-selling of endowment policies. Prof Peysner thinks there is nothing to stop another fiasco along the lines of Claims Direct or The Accident Group, leaving thousands of accident victims penniless – though he argues that this is less likely because of the pressure on insurance premiums exerted by the courts.


Ms Kitchener feels ‘more comfortable with the powers being with the secretary of state or even the FSA’ rather than the CSC. ‘I do not think that, while the CSC has done good work in monitoring activity, they have the framework there,’ she says. ‘We want to make sure that whoever does get the job, they actually monitor what goes on and are seen to have teeth, otherwise it is going to be an empty gesture.’


Jon Robins is a freelance journalist