Claimant bodies say insurers are 'under-settling' claims

Pressure is mounting on the FSA to introduce tighter regulations on insurers who deal directly with personal injury claimants who are not policyholders.

Insurance Times has learned that the regulator is holding talks with leading trade bodies in an effort to establish the extent of this activity, known as third party capture.

Representatives from the Law Society, the Motor Accident Solicitors' Society (Mass), the Association of Personal Injury Lawyers (Apil), the Claims Standards Council (CSC), Amicus and the Department for Constitutional Affairs (DCA) have met the FSA.

Collectively the organisations are urging the FSA to close a regulatory loophole which allows insurers to contact third party claimants directly and offer compensation.

The organisations presented evidence which suggested that 20% of all motor claims are captured in this way.

The CSC alleges these claims are "potentially under-settled by parties with a clear conflict of interest".

Andrew Twambley, chairman of the CSC, said: "Figures were shown illustrating that where third party capture had failed and the claimant received independent advice, damages had on average increased by 50%."

The DCA said that third party capture is not covered by the Compensation Act, which regulates claims management companies. It is thought that it wants the FSA to tackle this issue.

Tony Goth, chairman of Mass, said: "We want the same provisions which apply to solicitors and claims management companies to apply to insurers. But my fear is that is not the case. From the claimant perspective a regulatory gap has opened up."

An Apil spokeperson added: "We firmly believe that the fact insurers are already regulated by the FSA is not enough, as companies active in two areas of business such as insurance and claims management must comply with the regulatory requirement in respect of both.

"We are very concerned that consumers will be denied a much needed safeguard."

Insurers argue that by contacting claimants directly it is possible to reduce costs significantly and ensure a greater proportion of the damages are handed directly to the claimant.

Norwich Union has declared it would abandon the practice if the DCA delivered an alternative business plan.