Clause 3
Compensation Bill [Lords]
1:15 pm
Oliver Heald (Shadow Secretary of State for Constitutional Affairs & Shadow Chancellor of the Duchy of Lancaster (Assisted By Shadow Solicitor General), Constitutional Affairs; North East Hertfordshire, Conservative)
This group of amendments is all about ensuring that the regulation of claims management services is comprehensive. It is clear that self-regulation has not worked in this field and I welcome the Government’s decision to pass legislation that will effectively regulate claims management services.
In response to concerns raised by the Delegated Powers and Regulatory Reform Committee in the Lords and the Regulatory Reform Committee in this place, the Government have passed a significant number of amendments to what was originally proposed. Basically, that has ensured that some of the key points are in the Bill rather than leaving them to secondary legislation. I welcome that. The Minister who dealt with the matter in the Lords was very constructive.
The growth in the claims management sector came about as a result of the Government’s decision to pretty well abolish civil legal aid as it then operated and establish conditional fee agreements. As members of the Committee will know, civil legal aid has seen its budget reduced by 24 per cent. in real terms and considerable difficulties have been highlighted by the Access to Justice Alliance. Amendment No. 15 tackles the problem that two kinds of services appear to be referred to in the Bill: regulated and unregulated services. The effect of removing the word “regulated”, which is what I suggest, is that clause 3(1) would read, “A person may not provide claims management services unless—(a) he is an authorised person, (b) he is an exempt person” and the other provisions would then apply.
The question for the Minister is: what are unregulated claims management services? The word “regulated” has not been used by accident. The implication is that there must be such a thing as an unregulated claims management service, and as the Minister knows I am concerned that the Government might have worded the clause so as to ensure that some bodies that deal with claims management, such as trade unions, are exempt. If so, it is hard to see how that fits in with the clause on exemptions. I would be interested if the Minister clarified why the word “regulated” is used.
The president of the Chartered Insurance Institute, Mr. Hales, has branded claims management firms as a national disgrace and blamed them for the surge in unjust and vexatious complaints against life offices and advisers. The Law Society has talked of the significant body of evidence that the public need protectionfrom unregulated claims companies who employ unacceptable practices such as cold calling, aggressive selling, insurance mis-selling and encouraging all kinds of frivolous claims.
The Department for Constitutional Affairs report on “Effects of advertising in respect of compensation claims for personal injuries” supports that view and shows that claims management companies employ unacceptable practices. Chart 11 on page 22 of the report shows that 20 per cent. of those who made a claim found out about their claims management company from an unsolicited phone call, 18 per cent. did so from television adverts, 17 per cent. were approached in the street and 3 per cent. were approached while in hospital. Clearly we do not want the concept of the ambulance-chaser to become established in our country, and therefore firm regulation is needed.
It is no surprise that companies target the area in an aggressive way. If we consider the endowment business, the Boleat report states that insurance companies estimate that there will be about a million endowment compensation claims this year, with a typical compensation figure of £6,000. That is obviously very lucrative for claims management companies and, as the Boleat report notes, all they have to do is write one letter in order to get the money. About 30 per cent. of claims come though the claims management companies, which are taking 35 per cent. plus VAT on each transaction.
Claims management companies can expect to earn hundreds of millions of pounds through such claims. It is a serious and urgent problem, and in drawing up the legislation we must avoid any loopholes. That is why I should like the Minister to explain “regulated”.
Amendment No. 18 is small, but it would add “or other” after “legal” and therefore affect the processing of “a legal or other” claim. The idea is to be comprehensive, but there is no doubt that insurance or administration, which was not directly legal in every aspect, could be considered a part of claims management companies’ work. As the Minister will recall, when Claims Direct and the Accident Group were taken through the courts, they argued that they were insurance services and therefore exempt.
Amendment No. 19 is again designed to be comprehensive. If it were accepted, clause 3(3)(a)(iii) would read “referring or introducing one person to another,” and would be followed by a new sub-paragraph, “any service offered for money or money’s worth to persons bringing claims”. Adding those words would catch those people who carry out what are effectively claims management services, but who carefully do not present themselves as so doing. It would still exclude those who provide free advice.
It is not too far-fetched to imagine in a sector as inventive as the one under discussion that claims management companies seeking to avoid regulation may move into the rehabilitation sector and then provide all the other services as an ancillary service. I dare say that the Minister will tell me that the provision is inclusive and not exhaustive, but we must be careful.