Report shows increased CMC turnover of £211m

The rapid growth of the claims management sector is laid bare in figures published last week by the Ministry of Justice (MoJ).

The annual report of the MoJ’s claims management regulator shows a “significant increase in declared turnover” by claims companies in the year ending 30 November 2010, from £370m in the previous year to £581m, according to the report.

The biggest chunk of this is accounted for by more than a 50% increase in reported turnover in the personal injury sector, up to £377m compared to £247.5m in the previous year.

The growth in claims management company (CMC) activity is often viewed as the key factor behind the growth of road traffic accident personal injury claims, which is happening in spite of a fall in the overall number of car accidents.

But the report shows that the number of applications to set up authorised claims management companies was down to 19 per week in 2010/11 compared to 25 in the previous year, following a surge in bids to set up such firms at the end of 2009/10.

The biggest concentration of authorised claims management companies is in the North West.

In his foreword to the report, MoJ head of claims management regulation Kevin Rousell expresses concern that CMCs are increasingly seeking remuneration via upfront payments, rather than operating on a ‘no win, no fee’ basis.

“Some of those businesses have taken an advance fee for a claims management service that they have no intention of providing,” says the report.

Where claims companies have unfairly refused or delayed refunds of fees, the regulator has in many cases suspended or cancelled their authorisation to operate.

Commenting on the report, RBSI managing director of personal lines Tom Woolgrove said: “The 2010 increase in turnover and rapid growth in the number of CMCs must partly explain the continued inflation of both bodily injury frequencies and severity, especially when injuries and deaths on our roads are reducing according to official statistics.

“It is this, not insurers, that have fuelled claims inflation and caused premiums to rise. That is why we are calling for a ban of referral fees and fundamental changes to the personal injury legal process, to take the heat out of speculative or even fraudulent claims.”

He described it as “no coincidence” that while there had been a 20% increase in the number of CMCs, the government’s Compensation Recovery Unit had recorded more than a 26% increase in the number of road traffic-related personal injury cases.

We say ...

- The explosion in the turnover of claims management companies underlines just how much such firms are milking the insurance industry. With 19 new applications to set up CMCs every week, in some parts of the country they're probably the only growth industry in town.

- MoJ evidence detailing sharp practice and connections to criminal activity shows how dark the underbelly of the CMC sector is. While the MoJ has sharpened up its act on the regulation of CMCs, it probably needs to be even tougher.