Compensation (Claims Management Services) Regulations 2006

We have some brief observations on two of the three orders to which the Minister has spoken, the Compensation (Claims Management Services) Regulations 2006 and the Compensation (Regulated Claims Management Services) Order 2006. We wish to raise two matters on the Compensation (Claims Management Services) Regulations 2006: overlapping regulatory systems and authorisation. As far as overlapping regulation is concerned, as I understand it, the claims management services regulations apply where there is an element of uninsured risk. The most common example is where a customer has a no-fault insurance motor claim but has sustained injuries and does not have a before-the-event legal expenses policy. Many brokers, including insurance brokers, have been fully regulated by the Financial Services Authority since mid-2005; yet the new claims management services regulations will apply to all organisations that offer a claims management service, including those already regulated. Rather than simply applying the new regulations to organisations currently outside the existing regulatory regime, the insurance brokers, for example, which are offering claims management services, will be regulated twice over. We believe that all aspects of claims management services provided by brokers should be exempt. The current draft of the new regulations provides for a limited level of exemption, which in our view is far too narrow. It is surprising that the Government have not listened to those who have raised this point, because their approach under the order goes against the whole risk-based approach that they now tell us informs all their regulatory activity. The brokers to which I have referred now face a situation wheretwo separate bodies are involved in regulating intermediary claims activity. This cannot be in the best interests of either the efficient running of the businesses or their customers. On authorisation, Regulation 12(5)(c) states that a business must take responsibility for those who introduce business to them, but that the individuals—the business introducing individuals—do not require authorisation. Is that the right approach? It is the activities of those who introduce business that have caused most of the damage to the sector’s reputation; that is, the damage that the Government have aimed to tackle through the Compensation Act. The unregulated behaviour of speculative canvassing has misled consumers and generated thousands of spurious claims in the past. This needs to be addressed at the source rather than policed ineffectively by proxy. Many of these individuals are freelance and not tied agents. I do not think that it can be said against me that a requirement for authorisation is over-regulation. Without a requirement for all individuals and businesses involved in the claims process to be authorised in their own right, the unregulated market in claims introductions will continue and the Government will have failed in their aim to regulate out bad practitioners. Why is a requirement for individuals to seek authorisation impractical? How would a system such as the one proposed by the Government be overseen by the regulator? How can the regulator be confident that it will generate the results that the Government seek? What will the requirement be for businesses to ensure compliance in those from whom they obtain referrals—people who are not in any way authorised at all? All those points seem to be germane to the issue. The Minister will be pleased to hear that I turn now, more briefly, to the Compensation (Regulated Claims Management Services) Order, on which I wish simply to raise one point. Paragraph (3)(e), states that claims management activities include, subject to paragraph (4), referring details of a claim or claimant or a course of action or potential claimant to another person, including a person having the right to conduct litigation. Paragraph (4) makes it clear that, "““the service of referring a claim’s or a claimant’s details to another person is not a regulated claims management service if it is not undertaken for or in expectation of a fee, gain or reward””." The Government will allow a limited number of referrals for a fee if they are incidental to the main business of an organisation. An illustration of this might be a vehicle repair firm being paid by solicitors to refer customers who have been in road traffic accidents to those solicitors. In our submission, the Secretary of State as regulator should ensure that all persons carrying out any activity described in one of the categories that I have set out in paragraph (3) are properly regulated. How will a judgment on referrals that are incidental be made, whether in terms of numbers per month or the scale of the fee paid? To allow up to 100 claims per year for each body shop across the country, for example, would permit a very substantial number of unregulated claims generating significant income outside the regulations. If a garage or body shop is to be able to pass on referrals to solicitors for a fee, outside the regulatory system, that would undermine the whole principle of consumer protection enshrined in the Act. Body shops are often the first port of call for consumers following road accidents. Opportunities for disreputable practice in this market need to be addressed. It is not right that body shops should be free to refer claims for financial incentives while avoiding regulation to which others are subject. There is no justification whatever for incidental referrals for a fee, reward or gain to fall outside the scope of authorisation as regulated activities. Can the Minister guarantee that garages and body shops that pass on referrals for a fee, reward or gain will be covered by regulation?