Lord Falconer warns of regulation for no-win, no-fee firms unless industry cleans up its act

Government has threatened to regulate claims managers unless they clean up their act.

That was the warning given by the Department for Constitutional Affairs secretary of state Lord Falconer in a speech at the Insurance Times Future of Personal Injury Claims conference this week.

Responding to the Better Regulation Task Force's (BRTF) appeal for reform of the personal injury claims sector, Lord Falconer said: "Claims managers have one last chance to get their house in order or face formal regulation."

High profile failures such as Claims Direct and The Accident Group have left tens of thousands of claimants feeling cheated over access to justice.

In May, the BRTF published a report, 'Better Routes to Redress' which challenged the government to control claims managers, improve rehabilitation and consider reforming no-win, no-fee legal funding.

But while the BRTF said claims managers should self regulate by December 2005, the Department of Constitutional Affairs (DCA) wants action now. It will set up a ministerial review group, headed by Constitutional Affairs minister David Lammy, and an action group comprising lawyers, government, TUC, CBI and local authorities to monitor progress.

The DCA also wants to discourage claims managers from advertising in hospitals and doctors surgeries and will write to NHS Trusts to discourage them from allowing such advertising.

But the DCA has rejected the BTRF's proposal to replace conditional fees with US-style contingency funding. A spokeswoman said: "We have to keep going with this. We have just looked at reforms to conditional fees and these must be given a chance."

Lord Falconer also said that the government would investigate the proportion-ality of procedural and claims costs. This is intended to stop instances where damages of a few thousand pounds are dwarfed by massive legal costs.