MP Andrew Dismore is calling for the government to introduce tighter regulation for claims handling companies.

The Labour representative for Hendon will be sending a letter to Baroness Scotland of Asthal at the Lord Chancellor's Department asking what plans it has to regulate organisations such as Claims Direct. The letter will be sent in the next few days, according to the MP.

Approximately five years ago, the government held a consultation on the regulation of claims handling companies but made few changes. Now Dismore, who qualified as a personal injury lawyer in 1978, is pushing for another review. His requests follow Claims Direct's recent legal wrangles with its former claims managers and shareholders. Up to 40 franchisees and shareholders have instructed legal firm Class Law to act on their behalf.

"Lessons should be definitely learnt from the way Claims Direct has got itself into difficulties," Dismore said. "Claims Direct got itself into deep trouble. Franchisees are significantly out of pocket and claimants are left with uncertain futures.

"Four to five years ago Claims Direct was a highly successful company, but it is shown to be built of straw not bricks."

He added that "nothing really came out" of the government's last consultation.

Dismore said the companies "do not have the same protection as a solicitor through his compulsory insurance arrangements". He said policyholders were currently being offered better protection by a personal injury specialist law firm than a claims handling company as "if there is any malpractice, in the end the Law Society will offer compensation".

Claims Direct chief executive Ronnie Henderson said: "There is no regulation...but we run our business as if we were regulated.

"We are quite happy that our solicitors are regulated at the moment and the insurance aspect of our business is being earmarked for regulation under the Financial Services Authority in 2004."

Henderson added he had a meeting with Dismore scheduled for June.

Dismore said the challenge the government faced was finding a way to encourage open competition, while also protecting the consumer.