In November, the Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) announced its decision to start charging claims management companies (CMCs) to pursue cases. For many in the insurance marketplace this was received as a call to arms for regulators to get on top of the tactics deployed by some unscrupulous claims management companies and the impact these practices can have on the reputation of the market.
But what are these tactics, how are they evolving and what can be done to address these challenges? In conversation with Insurance Business Alexander Barry (pictured), claims director at Collegiate, highlighted how ‘no-win, no-fee’ outfits are undermining the financial services sector. He outlined how the more unscrupulous CMCs are being deliberately unclear to clients about what, and to whom, they will complain, and abusing the FCA complaints regime.
“The modus operandi of these firms seems to be based around adverts on social media,” Barry said. “A current theme for the CMCs concerns refunding fees for ’ongoing advice’. These adverts are vague but usually suggest they will ‘reclaim your money’ from a large, faceless investment company.
“From what we are told, these adverts are then followed up with a phone call, reiterating that money will be obtained from a large, multinational investment company. The letter of authority the client signs is vague, does not detail who the complaint will be made against or even the specific product or piece of advice to which the authority relates.”
This gives the CMC carte blanche to complain to the customer’s financial adviser, he said, with whom the client often has no concerns, about any and all products and services ever provided. This leads to a large number of clients withdrawing their complaints, after discovering the true nature of the complaint being made in their name, but by that time some of the CMCs are pointing to prohibitive and expensive cancellation clauses’ within their contract, suggesting that the consumers owe them hundreds or thousands of pounds for wasted time.
The complaints themselves are vague, often not even mentioning a single piece of advice, product or date. Instead, Barry said, the CMCs rely on the fact that the FOS has an ‘inquisitorial jurisdiction’ to expand any complaint referred to them. “Essentially, they know that the FOS will do the leg work for them,” he said. “Consequently, the CMCs do not respond to letters from professionals requesting clarification or more information, as they know that the FCA-mandated eight-week period before they can refer the matter to the FOS, is slowly ticking away.”
Touching on how these tactics are evolving, he noted that, in the short term, the aim is to get as many claims to the stage where they can take them to the FOS before the fee changes in April. Longer term, he said, over the last two years, Collegiate has seen the quality of complaints brought by CMCs decrease, and the firm suspects that this is deliberate.
“Many of the complaint letters from CMCs now resemble complaints brought in the past about payment protection insurance or endowment mortgages,” he said. “Even when the CMC finds, by sheer luck, a piece of advice that may be questionable, no effort is made to explain their concerns or even get the name of the product they are complaining about correct.”
Outlining the impact these practices have on the insurance industry, Barry underscored that it’s critical not to forget that claimant law firms and CMCs do have their place in society, providing access to justice for individuals and small businesses. However, he said, these firms do need to be responsible for the power they wield, especially when using the FCA’s dispute resolution system.
“Even the most vexatious and unmeritorious claims can, when made in sufficient volume, impact insurers, even just in terms of vastly increased claim numbers and the the cost of dealing with and defending these claims,” he said. “Ultimately, I think we do also need to see issues like the ‘ongoing advice’ complaints as an opportunity to form closer ties between insurers and the professions they insure, so that a unified front can be presented.”
As to what the regulators should be looking to do to prevent these firms from undermining the financial services sector, he noted that many CMCs are technically law firms so fall under Solicitors Regulation Authority (SRA) regulation. As a result, the SRA needs to hold these firms to the standards they apply to solicitors.
The greatest challenge, he said, is created by the fact that the companies carrying out claims management activity can be regulated by the FCA and/or the SRA. The FCA has previously insisted the regulators’ remit over these companies is a matter for parliament. “It concedes that dual regulation of these outfits was never the plan but the various conditions to exclusions designed to prevent it have created grey areas.”
Given all the other regulatory changes afoot, he said, legislative reforms to clarify ambiguities are unlikely to happen anytime soon. The SRA has proved itself to be reactive and slow to act, as can be seen in examples such as the collapses of SSB Law and Axiom Ince, the latter of which resulted in enforcement proceedings being brought against the SRA by the Legal Services Board.
“SRA-regulated firms are supposed to provide their services to a high degree of competence and professionalism, as per Rule 3 of the SRA Code of Conduct,” he said. “And it is difficult to see how a complaint letter that doesn’t detail the product it supposedly deals with, contains reems of factual inaccuracies and isn’t even addressed to the party the client thinks they are complaining about, meets these standards.”
PI insurers and their claims specialists can play a key role in both challenging CMCs and continuing the momentum for change at FOS. The insurers themselves sit on the International Underwriting Association’s PI Forum, Barry said, and so are involved in making submissions and representations to the regulators.
Claims specialist also play a critical role in sharing the trends and insights that they are seeing from their vantage point atop the market, he said.
