ABI asks for urgent reform of CMC regulation

Urgent action is needed to reform the regulation of claims management companies (CMCs) to address widespread misconduct, the Association of British Insurers (ABI) has warned.

The parliamentary Justice Committee met on 16 January to discuss the government’s proposals to reform the personal injury system.

Proposals include raising the small claims limit to £5,000 for road accident injuries and £2,000 for other personal injuries, as well as transferring the regulation of CMCs to the Financial Conduct Authority (FCA).

In its written submission, the ABI pointed out that fears that the government’s reforms would see more claims handled by CMCs are already a reality.

“There is already significant CMC involvement in the personal injury sector. In 2017, there were 752 authorised PI CMCs—more than in any other claims sector (including PPI),” the ABI explained.

The 2015/16 independent review of claims management regulation, conducted by Carol Brady,  recognised that financial links between CMCs and law firms still existed, despite the 2013 ban on the payment or receipt of referral fees between them for personal injury claims.

In its written submission, the ABI called for the UK government to follow Brady’s recommendation for the disclosure of the referral source for all claims.

The ABI said: “There is an urgent need to reform the regulation of CMCs to address the ‘widespread misconduct’ identified by Brady in her review. The Financial Guidance and Claims Bill, currently being debated in Parliament, will transfer the regulation of CMCs from the [Ministry of Justice] MoJ’s Claims Management Regulatory Unit (CMRU) to the FCA.”

“This would allow the recommendations of Carol Brady’s independent review into claims management regulation to be implemented in full—including more rigorous authorisations and approved person’s regimes preventing unsuitable individuals from being authorised to establish a CMC.”

The FCA intends to proactively reauthorise every CMC, the ABI said, and its more sophisticated econometric analysis will be able to identify those whose focus is primarily on marketing or lead generation, and those who may seek to manage the entire cycle of a claim.

“This will ensure that those firms most likely to be directly involved in claims being taken through the SCT [Small Claims Track] can be identified and be subject to appropriate regulatory supervision.”

The ABI concluded: “The insurance industry is confident that the FCA’s more robust regulatory regime will ensure consumers are given more information about the services a CMC offers and more transparency about the fee structure.”

“Under this new regime, claimants will be better able to determine if a CMC is offering value-for-money. It is therefore important that the reforms to the SCT are implemented in parallel with the reform of CMC regulation.”

Mark Dugdale