The scale of contraction in the personal injury market is laid bare by a new report from a government body.

The Claims Management Regulator, managed by the Ministry of Justice, confirmed ‘notable decreases’ were suffered in the personal injury claim sector during the year.

In its annual report, published this month, the CMR said turnover for the claims management PI sector fell by 15% to £182m in 2016/17, most likely as a result of ongoing challenges in the market following reforms of recent years. As recently as 2014/15, turnover in the sector was more than £300m.

The CMR said a small number of businesses hold a dominant share in the market. This is expected to continue, with proposed and imminent reforms making it less attractive for new businesses due to the ‘future uncertainty and difficulties in business planning’. The government is likely to increase the small claims limit for road traffic accident claims to £5,000 and is in the process of legislating for a tariff system for whiplash damages.

Applications from businesses intending to operate in the PI sector were down by 47% in the year.

The total number of authorised CMCs operating in the PI sector has now fallen from 979 in 2015 to 762 in 2017.

The CMR said the market continues to develop various business models designed to comply with the ban on referral fees after April 2013. Where problems are identified, businesses are encouraged to make appropriate changes to their model by working with the solicitors receiving the claims.

Regulators have focused on a small number of CMCs that enter into a contract with personal injury clients under a damages-based agreement, meaning the CMC receives a percentage of the client’s damages if the claim is successful.

The CMR report confirmed many of those audited are failing to comply with regulations on damages based agreements, and most companies using this model have ceased to do so.

The CMC carried out 878 visits and 202 audits to check companies are complying with the referral fee ban and other conduct rules. Much of the focus has been on CMCs telemarketing personal injury claims services. In total, 50 warnings have been issued where rule breaches were identified and searches were made at multiple premises of one particular CMC.