Financial Guidance and Claims Bill [HL] - Committee (4th Day)

Part of the debate – in the House of Lords at 3:37 pm on 13 September 2017.

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Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 3:37, 13 September 2017

My Lords, these amendments in my name seek to extend the scope of regulations in the sphere of personal injury claims. Before speaking to them, I remind the Committee that regulation should always remain proportionate—something on which the Government have always been very clear and which I strongly support.

The problem we face and the reason why extension of regulation should be considered at all is that we continue to be in the grip of what the Government themselves describe as a “rampant compensation culture”. Noble Lords may recall that I set out a brief history of the regulation of claims management companies during the debate on Second Reading. The reason why we are back debating, and I hope supporting, more effective regulation of CMCs is that this insidious, divisive and potentially ruinous problem continues to grow. There is a serious danger that our civil justice system, which has long been the envy of the world, could be overrun and reduced to a laughing stock by the waves of claims generated by these cynical and ruthless companies.

I will return to this point on another amendment to refer the Committee to the latest phenomenon of holiday sickness claims. For now, perhaps I may just quote from the decision of Lord Justice Jackson last week in the Court of Appeal case, Thomas v Hugh James. It stated:

“The civil justice system exists to enable injured parties to recover compensation for genuine wrongs. It does not exist to service artificial claims stirred up by advertisements”.

Lord Justice Jackson, who has done so much brilliant work producing recommendations for containing legal costs and whose latest proposals on fixed costs in cases up to £100,000 in value were published on 31 July, struck right to the heart of the matter with characteristic precision and candour. Noble Lords will know that I have long been an insurance solicitor, having started life as a solicitor for the Transport and General Workers’ Union, so I have quite a history and declare my interests in this matter. This growing culture of artificial claims really is the tail wagging the dog.

When we first dealt with the regulation of CMCs in 2006, we were very conscious of the effect of the self-serving mantra of the CMC sector: “Where there’s blame, there’s a claim, and it won’t cost you a penny”. I am keen to establish that where there is a claim, there should be proportionate and effective regulation in the public interest. Many participants in the injury claims industry are already regulated: solicitors, insurers, brokers, doctors, even claims management companies. The amendments would close loopholes to ensure that control by regulation extends to all those with a financial interest in the damages and legal costs pursued in the name of injured claimants.

This is not just about controlling the cost of insurance claims, although ultimately that restraint is good for society as a whole as well. It is also an essential part of consumer protection. Amendment 69A would address something known as “credit hire”—I have used the term “temporary replacement … vehicles” because that is a term understood within the industry to cover all relevant arrangements.

A motorist whose vehicle is damaged through the fault of another may recover damages for the loss suffered as a result of their vehicle being out of use. That may, where reasonable, involve recovering the cost of a hire vehicle. This straightforward concept has spawned an industry of “credit hire organisations”. “Credit hire” allows customers to hire on “credit” terms, which are offered with the expectation that a recovery will be made from the at-fault driver’s insurer. The hire rate charged by the credit hire organisation is usually much higher than the prevailing rate on the high street. This is, in effect, the cost of the credit risk, but it is not badged as a charge for credit and therefore is completely unregulated. Nor is the customer told how much of the price might represent the cost of credit.

The whole concept has been the subject of much litigation over the years and formed a major part of an investigation by the Competition and Markets Authority into the cost of private motor insurance in 2014. The CMA actively considered greater regulation as a solution, but ultimately decided it lacked the authority to impose such a remedy.

Many credit hire providers are already FCA authorised and all are likely to be licensed by the FCA for provision of consumer credit. This core activity of credit hire is, however, delivered through the use of exemptions which circumvent the consumer credit regime. This market affects many people. Consumers often sign up to credit hire without understanding that they had other options. They are all too frequently unaware that, when they agree to accept a credit hire vehicle, they are signing a contract that makes them bound to pay the full price for the vehicle. They are not protected from unclear terms for payment or cost.

Amendment 69A would make all the activities of such organisations subject to regulation by the Financial Conduct Authority. Not all the attendant problems can be addressed by extending the scope of regulation but it would be a positive step in the right direction. These companies provide a consumer service but it should be done in a properly controlled environment.

Amendment 69B, in my name, seeks to extend regulation to all involved in the personal injury claims food chain. In such claims, the claimant is required to obtain and serve a medical report. It might be thought that this would simply involve the claimant’s solicitor contacting—as I used to—a reputable medical specialist and commissioning a report direct. Unfortunately, in the world of high-volume, low-value personal injury claims, this is now a long way from the truth. A whole market has developed for intermediaries to organise the provision of medical reports for solicitors. The solicitor will contact one of these medical reporting organisations, known as MROs, which will have contracts with medical experts all around the country. The MRO then manages the medical appointment, vets the report and invoices the solicitor. These are commercial organisations which take a fee from the system for what they do. That has led to considerable concerns as to their independence and the quality of reports generated. Some solicitor firms have even set up or required their own MROs.

These concerns led to the Ministry of Justice deciding to set up something called MedCo in 2015. MedCo provides a system that solicitors must use when obtaining a medical report in low-value road traffic accident claims. Solicitors, MROs and medical experts sign up as users. The MedCo system generates a random selection of MROs and medical experts with whom the solicitor has no financial links, and the solicitor must then pick a provider from the list to prepare the report. Since going live in April 2015, MedCo has had to deal with many attempts to wriggle round the controls imposed by the system. One more serious issue was the creation of shell companies by the big MROs to ensure that they featured more regularly in search results. In November last year, MedCo had to suspend 134 of these shell companies.

MedCo now finds itself obliged to attempt to regulate the activities of these MROs without possessing the necessary regulatory powers. This takes up a significant amount of MedCo’s time and resources, which would be much better spent focusing on its original purpose of improving the quality and objectivity of medical reporting in these low-value claims. MROs are unregulated but sit in the middle of a process where all other parties are regulated. Their track record since 2015 provides ample evidence that regulation of their activity is sorely needed—again, very much in the public interest. That job cries out for an experienced regulator with appropriate enforcement powers. Hence this amendment, which seeks to bring the activities of these MROs within the remit of the FCA.

We are making progress but the world of claims management is live, creative and fleet of foot. No sooner is one loophole closed than another is found and exploited. I just hope my amendments might help us propel the regulators one step ahead of all those constantly undermining the civility and stability of our society by setting people against one another purely for their own financial gain. I beg to move.