Industry experts notice a more aggressive approach from CMCs, including cold calling, but the FCA confirms it is looking to stamp out bad habits in this section of the insurance market

Following three ‘Dear CEO’ letters to claims management companies (CMCs), Barbara Kubis-Labiak, technical specialist in the claims management companies department at the FCA, is “still worried” about “areas of harm” and risks reigning in this sector, such as “poor disclosure”, “unclear fee structures” and “service standards”.

Speaking at this month’s virtual Insurance Times Fraud Charter event, sponsored by Carpenters Group, Kubis-Labiak told online attendees about the FCA’s most recent ‘Dear CEO’ letter for CMC bosses, which was published on 26 October.

In the letter, which outlines the FCA’s most recent two-year supervisory strategy and priorities for this section of the market, the FCA said “many CMCs have demonstrated a poor understanding of, and sometimes attitude to, their regulatory obligations”.

Kubis-Labiak said the letter had been “well received” so far.

She explained: “The key purpose of it was to show that there are areas of harm, that there are risks that we are obviously still worried about and that’s based on all the information and intelligence [that] we’ve gone through during [the] authorisation process.

“That letter shows you exactly what we have identified when we have been going through the applications.”

Outlining these risks, Kubis-Labiak said: “Financial promotions are still a problem. It’s still out there.

“Also, things like conflicts of interest. Phoenixing [starting a new business when one has become insolvent] is one other one that we look at.

“The poor disclosure, it’s all still there. Unclear fee structures, service standards and using data to recycle and remarket claims. So, that is one of the harms that we have definitely identified, [because it gives] rise to nuisance calls and so on.”

Out of 993 authorisation applications from CMCs, Kubis-Labiak said more than 600 had been approved by the FCA while around 150 had been withdrawn because they either weren’t ready to be authorised or because the FCA encouraged the firm to withdraw from the process.

In light of October’s ‘Dear CEO’ letter, Kubis-Labiak emphasised that the FCA would take enforcement action if CMC behaviour around the highlighted harms and risks did not change.

Personal injury focus

Moving forward, there are two main areas where Kubis-Labiak predicts potential problems involving CMCs.

“Where we see CMCs moving into is complex, high value financial claims. This is where some of the potential harms, following from [payment protection insurance], could appear,” she said.

“And then personal injury. With the whiplash reform next year, we will potential be seeing other risks. And then PPI wind down.”

Kubis-Labiak added that her department will be having a specific focus on the personal injury arena over the next two years, with dedicated resources being allocated.

Donna Scully, director at Carpenters Group, told Fraud Charter attendees that she believed CMCs have been getting more aggressive and had ramped up their cold calling efforts – she added that the industry had become “really nervous” about these trends.

She continued: “When I read the [Dear CEO] letter, it was a worry for us because we do think there are going to be more CMCs next year with the whiplash reforms and effectively deregulation and lawyers maybe not being in the market as much up to £5,000.”

Post-reform, Scully noted that some CMCs may not focus on personal injury anymore as they may not deem it as “lucrative”. These businesses could then switch to concentrate on credit hire, for example, which is not a regulated activity.

Kubis-Labiak agreed, reminding delegates that the FCA only regulates bodily injury referrals to solicitors, meaning credit hire falls out of this remit.

But, she added that although the regulator cannot act on specific cases of fraud, it can investigate and scrutinise firms to review whether they are fit and proper, which can still prove helpful.

Scully added that the CMC market can be difficult to regulate – she further speculated that the firms that withdrew from the FCA’s authorisation process could still be trading. Kubis-Labiak responded however that this activity was unlikely to go unnoticed by the regulator.

Exaggerated claims

Meanwhile, Ben FitzHugh, director of intelligence at BLM, added that he has seen CMCs “over exaggerating the genuine nature of your claim, so potentially duping somebody into thinking they have a more valid claim than they do”.

He continued: “Some of these are genuine claims, but I think what claims management companies are doing is over exaggerating the probability of a claim succeeding.”

To combat this trend, FitzHugh recommended increasing “the amount of education to promote best practice in terms of actually presenting a claim, how to ensure that you go through the right process and achieving compensation if it’s needed”.

Clare Lunn, director of GI fraud at LV=, also flagged that poor customer service from CMCs can damage an insurer’s reputation, as many claimants believe they are dealing with the insurer directly rather than a third party.

Regulator collaboration

Lunn continued that fraudulent cases around claims farming and ghost broking often require complex investigations that can involve more than one regulator – she said this can be challenging to coordinate and that the industry needs to get better at bringing different regulators together so that “nothing falls through the cracks”.

Scully agreed, noting that “fraudsters love siloes” and that a joined up approach to regulation would be more beneficial, especially as she believes the regulation of CMCs has always been a big issue.