More than 140 claims management companies (CMCs) are being asked to prove they have not breached the referral fee ban since April, the government has revealed.
The Claims Management Regulation Unit, managed by the Ministry of Justice, has visited more than 450 companies across England and Wales since the ban came into force on 1 April.
Of those, almost one-third have been issued with notices to provide full details of their business models and seven handed enforcement notices for rule breaches or irregularities with websites.
Following the unit’s intervention, 13 CMCs have ceased operating in the personal injury sector due to breaches of the ban and four new ventures were prevented from trading.
The figures were revealed in the unit’s annual report, published today.
The report also shows that the number of CMCs registered to handle personal injury claims fell from 2,435 in March 2012 to 1,700 in June 2013.
Justice minister Helen Grant said: ‘We have taken strong action to rein in the rogue firms which have gathered in this sector and the impact is now starting to show.
‘Ending [referral] fees which fueled 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.’
The claims management sector is already being affected by the referral fee ban in PI: turnover for the personal injury sector accounted for 35% of the claims management industry’s turnover last year, compared with 59% the year before.
Overall, by the end of March 2013 there were 2,693 authorised CMCs, compared with 3,007 in March 2012.
Last year the MoJ stepped up its regulatory action, canceling the authorisation of 211 of these companies and ordering a further 677 to surrender their authorisation. In 2011/12, 260 authorisations were cancelled and 539 surrendered.
But the appetite for entering the sector shows no sign of slowing down, with 612 new CMCs authorised in 2012/13 compared with 591 the year before.
Kevin Rousell, head of the regulation unit, said: ‘It is our absolute priority to protect customers and we are making certain that firms are following the rules at a time of major change for the claims management industry.
‘We do not tolerate bad practice and continue to take action against companies which break the rules, including removing their licence to trade. We shut down more than 200 last year.’
The annual report reiterates the MoJ’s intention to extend the Legal Ombudsman’s jurisdiction to cover complaints about CMCs, although no date is given for the reform.