Claims management companies will find themselves under the scrutiny of the Financial Services Authority (FSA) by next week, it has emerged - but lawyers have warned that the moves will not go far enough.

An FSA spokesman told the Gazette that many claims farmers would come under its remit from 14 January. 'One of the general insurance regulated activities will be assisting in the administration and performance of insurance contracts,' he said. 'This 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.' But he added that the FSA does not oversee the carrying out of administration - for example, claims handling - on behalf of an insurer.


The Department for Constitutional Affairs said that although the FSA's efforts were welcome, there were still gaps in monitoring how claims managers performed; a spokeswoman said it still wanted to control activities such as cold calling and claims handling, which currently saw poorer families 'ripped off'.


FSA: gaps in monitoring

David Hargreaves, chairman of after-the-event insurer Accident Protect and a founder of the Claims Standards Council - the body likely to be charged with reining in claims management companies - said: 'We estimate that the number of [claims management companies] is no more than 350. Of those, probably only 20 to 30 also sell insurance, therefore only a minority and not the majority will be covered by the FSA.'

The council has submitted a draft code of practice to the Office of Fair Trading for government approval.


But Law Society President Edward Nally said that the government needed to step in. 'Claims handlers must be properly regulated so that consumers can have confidence in every aspect of what they do in relation to handling personal injury claims, and not just selling insurance,' he argued.


The Association of Personal Injury Lawyers agreed. A spokeswoman said: 'Even if claims management companies are regulated in part by the FSA, there will still be many companies which slip through the net, as there is currently no way of determining how each company operates. What we need is transparency, and this will only be achieved through government regulation.'