Claims management companies (CMCs) operating in the financial claims sector have generated more than twice the turnover of the personal injury sector for the first time, according to the Claims Management Regulation Unit (CMRU).
In its annual report for 2015/2016, the CMRU has revealed that turnover in the financial claims sector increased by 16% to £532 million. The turnover for the personal injury sector decreased by almost a third to £215 million. This is despite the fact that there are fewer CMCs operating in the financial space than there are in PI.
The CMRU said that this decline was due to the ongoing challenges in the market following the 2013 LASPO Act reforms and reduction in the number of CMCs operating in the sector.
The top 25 highest grossing CMCs accounted for 52% of the total declared industry turnover for the 12 months to 30 November 2015, which was £751 million, a decrease of 3% on the previous year.
The total number of authorised CMCs has also fallen year to 1,610. In 2011, the number of CMCs in the UK reached a peak of 3,213.
However, the CMRU said that the rate of decline had slowed in the last two years. Almost three quarters of CMCs have been authorised for more than three years, suggesting that the market has stablilised somewhat.
During the last financial year the regulator investigated 41 authorised CMCs and 47 businesses suspected of providing claims management services without authorisation.
It issued 247 warnings to CMCs and advised hundreds more, following 306 audits and 1.196 visits. It cancelled the authorisation of 66 CMCs, suspended four and imposed financial penalties on four CMCs, which totalled more than £1.7 million.
Kevin Rousell, the head of the CMRU, said that the body’s new power to sanction misconduct with financial penalties had proved to be a much needed and flexible enforcement tool.
“Much of our regulatory action using this new power has been focused on non-compliant direct marketing and misconduct in relation to claims handling in financial and personal injury claims,” he said.
“The action we take is robust but proportionate and those CMCs which operate compliantly have continued to benefit from a generally lighter touch approach.”
First4Lawyers managing director Qamar Anwar said that the report had showed that the legislative changes introduced into the personal injury sector in 2013 were working.
“We believe it is too early to drive through any further legislation,” he said.
“Within the PI sector, the number of warnings issued has fallen by 76% while visits have increased more than ten-fold. The CMR’s figures suggest it has made 1.5 visits on average to each PI CMC, yet warnings and investigations have been issued to just 6% of the market, compared to 24% in 2014/15. This is to be welcomed and demonstrates a much improved sector.
“We remain very concerned to see the increasing volume of complaints about unauthorised CMCs and are fully aware that these rogue firms are causing major problems for legitimate service providers. We will continue to work with the CMR to ensure that steps are taken in our sector to uphold the highest standards.”