The Claims Management Business – A brief history

Over the past 10 years or so, the claims management business has grown from virtually nothing to a very substantial industry worth many millions of pounds per year. So what is it? Basically, if you have an accident and that accident was someone else’s fault, you probably need to make a claim for compensation. If you were injured as a result of the accident, ultimately you claim will be handled by a solicitor. Before the changes in the legal system when Legal Aid was abolished in England and Wales, you would have contacted a solicitor and he/she would have taken your case on in the knowledge that, win or lose, they would get paid. The client would also know that, win or lose, they would not have to pay anything. This all changed and so was born the ‘No Win No Fee’ era.

A number of claims handling firms began to spring up, offering to deal with claims on a No Win No Fee basis which generally meant that if they handled your claim by passing it to a solicitor on your behalf, they would sell you an insurance policy that ensured you would pay no legal costs if your claim failed. If your claim was successful, you would often pay a success fee to the claims firm. The problem was that many clients did not know how much they would have to pay until their claim was settled. The good claims management companies would make it very clear from the outset that, the insurance policy was, say £200.00 and their fee for assisting the client was, say, £250.00. Other companies would sell an insurance policy at a much higher premium, say £500.00, and then agree to defer the cost until the end of the claim by offering a loan at a high rate of interest. On the basis that many claims take up to three years to settle, the client may have ended up paying £1000.00 for the insurance plus a fee to the company of £500.00. If their claim successfully settled at £2000.00, the client would end up paying £1500.00 of it back to the claims Management Company.

As time passed, many claims management companies added more services they could offer their clients. Perhaps a free courtesy car if a motor accident. They could instruct their own chosen medical agency for medical reports or insist that their chosen solicitors used a particular insurance policy. These services were helpful to the client but also ensured additional commission to the claims Management Company.

There are many good claims management companies who genuinely try very hard to help their clients but, as in all industries, there are also a number who maximise their income at the client’s expense. As time has passed, this has become more and more apparent and the level of complaints from the public rose dramatically. Several large claims handling companies went out of business leaving thousands of clients in difficulty.

As the industry was getting a bad reputation, it was decided that a regulatory body should be set up and that claims management companies should join it if they wished, and then agree to abide by certain standards. The Claims Standards Council was born. The problem was that, as this is a voluntary membership, only the companies interested in provided a good, honest, ethical service were interested in joining. Any less scrupulous organisations simply carried on as usual.

It may come as a surprise to most people to learn that the claims management industry has been completely unregulated. By this, we mean it does not have to comply with any authorities such as the Law Society ( the body that governs all solicitors and legal practitioners in England and Wales ) or the FSA ( Financial Services Authority that governs Financial Advisers, Insurance Brokers, Mortgage companies and many others). Yet, the claims management industry has regular dealings with service providers who are governed by both of these bodies.

The government began to take notice and it was felt that there should be regulatory body that would ‘clean up’ the industry as a whole and so began the move towards the Compensation Bill.