CMCs’ turnover tops £1bn as referral fee ban prompts mass exodus from personal injury

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23 July 2013


Grant: strong action to rein in rogue firms

The turnover of claims management companies (CMCs) spiralled 31% last year to top £1bn, with the turnover for the financial claims sector exceeding that of personal injury (PI) companies for the first time, Ministry of Justice figures have shown.

It comes as the number of claims management companies handling personal injury work has tumbled by 30% since March 2012.

The claims management regulation unit’s annual report said the total turnover declared across all regulated claims sectors for the year to 30 November 2012 was £1.01 billion, up £240 million on the previous year.

The turnover attributable to claims for financial products and services mis-selling more than doubled to £653m, while for PI claims it fell 22% to £354m.

There were 2,435 CMCs registered for PI work in March 2012. This had fallen to 1,902 a year later and by last month it had dropped further to around 1,700.

“We anticipate that the personal injury sector will continue to significantly contract in 2013 as CMCs who are unable to adapt their business model to comply with the referral fee ban, exit the market,” the report said.

Since April the unit has visited more than 450 CMCs to check their compliance with the ban, leading to further investigation of 141, action taken against seven and 13 surrendering their licence to trade. A further four firms were discovered trading without authorisation.

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 these fees which fuelled 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.”

In 2012/13 the regulator cancelled the trading licences of 211 companies, audited 129 and issued formal warnings to 285. It has now shut down more than 900 firms since being set up in 2007.

There are also now tougher conduct rules in place – including a ban on firms taking fees from customers before a written contract has been agreed and signed, and on inducement advertising – and an online tool that allows consumers to check whether enforcement action has been, or is being, taken against a CMC, while further action is planned around payment protection insurance claims.

Some 1,155 CMCs are registered for financial claims, making a total of 2,500 given that some CMCs handle more than one category of claim.

The MoJ ramped up the rhetoric to announce the news today, with its press release saying: “Hundreds of the firms which bombard the public with adverts for profitable compensation claims have left the industry following changes to the law.”

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