The turnover of personal injury claims management companies (CMCs) bounced back 27% to £310m last year as the market began to “stabilise”, it has emerged.
Applications by personal injury CMCs for authorisation from the Ministry of Justice also increased by almost two-thirds (64%) in the 2014/15 financial year, although the number leaving the market is still high, with 246 personal injury firms surrendering their authorisation during the period.
In its annual report for 2014-15, the Claims Management Regulation Unit (CMRU), based at the Ministry of Justice, said the market had “begun to stabilise after adjusting to the effects of major civil justice reforms introduced in 2013”.
As first reported on Legal Futures last month, the total number of personal injury CMCs fell below 1,000 during the financial year, to 979. The CMRU said the sector was now “the smallest it has ever been since the early days of regulation in 2007”.
Nonetheless, their collective income jumped from £238m in 2013/14 to £310m over the last year. In 2012/13, the last year before the Jackson reforms kicked in, 1,902 personal injury CMCs recorded a turnover of £354m.
The CMRU went on: “Although we had anticipated a continued contraction in the sector during 2014/15, the rate at which this has occurred has slowed.
“The characteristics of the sector have also remained polarised with a small number of the very largest CMCs featuring prominently in the personal injury claims sector.
“Despite the ongoing consolidation of the sector, a large number of small and locally-operated CMCs have worked with solicitors to try and adapt their business models to make them compliant with the referral fee ban.
“For many of these CMCs, the main focus of their business is on providing services ancillary to personal injury. Other accident management activity including vehicle recovery, storage, repair and hire, has been proving more profitable than injury claim services.”
Despite its enthusiasm in policing the referral fee ban, with 386 visits during the financial year, the CMRU said that only in a “small number of cases” had CMCs been found to be in breach of the ban.
The unit said: “We found that where CMCs were failing to comply with the referral fee ban, this was usually due to misunderstanding the requirements of the ban or the instructions they had received from solicitors, rather than flagrant breaching of the ban.
“Following advice and/or enforcement action, their business models were re-assessed and in most cases the CMC became compliant.”
There has also been a fall, from 1,014 to 847, in CMCs operating in the other main regulated area – financial products and services – and their turnover remained stable at £458m, up just 1% on the previous year.
In his introduction to the annual report, Kevin Rousell, head of the CMRU, said it would take a “tough line” on CMCs seeking leads to pass to solicitors for noise-induced hearing loss claims.
“In this area some CMCs – and some solicitors – have a lot to do in terms of making sure leads are legally-obtained and claims are properly substantiated before being submitted.”
In a separate development, the appallingly low level of public confidence in CMCs has been highlighted by Legal Ombudsman (LeO) research.
Extracting figures from an online poll of over 2,000 adults in February this year by YouGov, LeO said that only 4% believed that CMCs “tell the truth”, and only 6% think the “rights of consumers are protected by CMCs”.
Over a third of consumers (35%) admitted that they would not know where to take a service complaint about a CMC. Such complaints are now handled by LeO.