CMC numbers slump as referral fee ban hits home

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5 November 2013

Rousell: four main CMC models emerged post-April

The number of claims management companies (CMCs) has fallen by nearly a quarter since the introduction of the referral fee ban and prohibition on offering inducements, new figures have shown.

At the end of September 2013 there were 2,350 CMCs, down 23% in six months, with those operating in the personal injury market unsurprisingly the main reason for the fall.

A report published by the Claims Management Regulator said that since April it has visited around 700 CMCs and requested information on business models from 372, to check compliance with the new rules.

“During this period of pro-active work, over 400 CMCs surrendered their authorisation,” the CMR reported. It also identified and stopped seven unauthorised businesses from trading.

It said most of the CMCs that exited the market were small businesses, “which had either ceased trading altogether or were focusing [instead] on the credit hire/bent metal aspects of accident management”.

Speaking to the recent Motor Accident Solicitors Society conference, the head of the CMR, Kevin Rousell, said the most common models adopted by CMCs since the ban were recommendation services, providing services to solicitors – such as translating, vetting and marketing – damages-based agreements and case management fees.

The CMR report said: “We anticipate that the personal injury claims market will continue to contract in 2013 and beyond as CMCs who are unable to adapt their business model to comply with the referral fee ban, exit the market. The financial products and services sector remains steady, although the PPI [payment protection insurance] claims market has started to show signs of contraction.”

The CMR is planning to consult shortly on tightening up further the conduct rules for CMCs. With complaints about unsolicited calls and texts on the rise, this will include “more specific requirements on CMCs’ responsibility to ensure that the data/leads/claims they buy from introducers/agents have been legally obtained”.

There will also be “more specific detailing” of CMCs’ responsibilities generally in response to concerns that “too many CMCs are failing to act responsibly” when dealing with PPI claims.

The report offered no date for when responsibility for handling complaints against CMCs will be moved from the CMR to the Legal Ombudsman. As previously reported on Legal Futures, the government has accepted the Legal Services Board’s argument that primary legislation is needed to ensure that the ombudsman’s costs can be collected from the CMC industry rather than the wider legal profession.

“Until a legislative vehicle is secured, the Ministry of Justice cannot commit to a specific timeline,” the report said.

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