The turnover of claims management companies (CMC) soared by 57% to £581m over the past year, despite a ten-fold increase in the number of businesses having their authorisation cancelled, their regulator has reported.
In his annual report for the year to 31 March, Kevin Rousell also revealed that his staff direct unrepresented consumers away from those he regulates, along with a crackdown on unsolicited texting.
After two years where turnover was fairly static at around £370m, the report says the sharp increase in the last 12 months was due to CMCs operating in personal injury (£248m to £377m) and the financial services and products sector (£104m to £189m).
Between them the four other areas of regulated CMC activity – criminal injuries, industrial injuries disablement, housing disrepair and employment – accounted for just £15.6m, most of which was from employment work.
At the end of March 2011, there were 3,213 authorised CMCs, up just 91 on the year before, although this masks several hundred firms opening and closing during the year. The claims management regulator cancelled the authorisation of 349 businesses, compared to just 35 the year before.
The report said: “The majority of those cancelled were for non-payment of fees, but a significant number were cancelled for rule breaches that were not remedied.” These included not dealing with clients fairly, poor sales practices and not providing consumers with pre-contract information.
The regulator assisted around 17,500 consumers with complaints or enquiries and Mr Rousell said his team will give general consumer advice where feasible. “For example, in the financial claims sector, we will signpost unrepresented consumers to independent non-commercial advice available from the Financial Ombudsman Service helpline about the financial complaint they have. It is important for consumers to be aware that in many cases, like payment protection insurance claims, there is an alternative to using a paid representative.”
However, he added that “good CMCs can provide a helpful service for some consumers by alerting them to circumstances where there may be a justified complaint and supporting them to obtain fair compensation”.
The report said the main challenges in dealing with unsolicited texts for claims services are identifying who is responsible for them and building up the evidence needed to take effective enforcement action.
The regulator has worked with the Direct Marketing Association to form a cross-industry regulator working group to address the problem, including Ofcom, the Information Commissioner, the Telephone Preference Service and representatives from the mobile marketing industry.