Insurers are putting solicitors in potential breach of their code of conduct by passing on work obtained through cold-calling third parties involved in car accidents, it has been claimed.
Marketing collective First4Lawyers said insurers were more generally “flouting” the rules that apply to claims management companies (CMCs).
It argued that the Financial Conduct Authority (FCA) – which takes over the regulation of CMCs next April – was wrong to say insurers were not covered by the new regime.
In its response to an FCA consultation on recovering the cost of the new regime, First4Lawyers highlighted the practice of insurance companies contacting the other party when one of their insureds is involved in an accident – often by cold-calling – to offer claims management services.
The response said that, while the consultation identified a shrinking CMC market as a driver for the level of fees being sought, it was “silent” on the separate regulation of this activity, which fell outside of insurers’ regulated activities because it involved a third party.
Indeed, speaking at last month’s PI Futures conference, Garry Hunter, the head of claims management at the FCA, said insurers were not within its remit and that the government had decided who should be regulated for the purposes of claims management activity.
First4Lawyers said it did not accept this, arguing that the Financial Guidance and Claims Act 2018, which transfers CMC regulation to the FCA, said an activity was regulated where it “is, or relates to, claims management services”.
There was, it argued, no reason why insurers should be treated differently from CMCs.
Further, it said there were concerns around potential breaches of the SRA Code of Conduct – if solicitors accept referrals of work generated by cold-calling – the Data Protection Act 2018 and the Financial Guidance and Claims Act 2018, which also bans cold-calling.
This meant “there is even more requirement for insurers to be regulated as they appear to be directly flouting the rules that apply to CMCs”.
The response added that regulation of these activities would both address concerns about the ability of CMCs to compete with insurers offering claims management services, and also spread the cost of it.
First4Lawyers also called on the FCA to introduce a risk-based fee structure. It said this would ensure that financial services CMCs, which are responsible for 95% of complaints, pay the bulk of the cost of regulation.
The FCA will require CMCs to seek individual permissions for each of the seven regulated claims management activities, “and it is therefore quite possible to attribute the level of consumer protection relevant to each permission and set fees accordingly”.
The response said: “We note that the consultation paper states that this would have limited benefits and could unnecessarily complicate the structure.
“We don’t agree: the permissions are clearly defined and each can be measured in terms of the potential harm that those carrying out those permitted activities could cause to consumers.
“They are then asked to pay a fee appropriate to that level of risk and potential harm. It is not complicated and the very clear and obvious benefit is that each CMC are paying a level of regulatory fees that is reflective of their own business model and the harms it could potentially cause consumers.”
Andy Kay, director of operations at First4Lawyers, said: “We welcome the prospect of the FCA imposing stricter regulation than CMCs currently face – those of us that operate ethically and efficiently have nothing to fear.
“All we are asking is that the level playing be made equal as between CMCs and insurers carrying out the same activities, and between the different types of CMCs.”