On the final straight

The publication of the Boleat Report saw Baroness Ashton rule the Claims Standards Council (CSC) out of the race to become claims management company regulator.

According to experts, this now leaves two institutions in the frame to become the claims watchdog: either the FSA or, more likely, the Office of Fair Trading (OFT).

So what does the report say about the role which the new regulator will have to fulfil?

The report, written by former ABI director general Mark Boleat, was commissioned by the government to examine the CSC's suitability to become the claims management companies' regulator, a position that the CSC has long lobbied for.

But the report has brought the CSC's aspirations in this regard to an end.

Instead, the 42-page document makes constant reference to the OFT and its suitability in light of the Hampton Report - the government's review of regulation.

It highlights the importance of having public trust in the new regulator.

As a trade body, the CSC does not have the same recognition with the public as an organisation such as the ABI, argues Boleat.

Furthermore, according to the Hampton Report, "consumer protection" is essential for any potential regulator.

Boleat says the Lord Chancellor, Lord Falconer, has abandoned hopes of establishing a new regulator in any field. Rather, the OFT will be given an enhanced role and a "local better regulation office" established.

Effectively, this means the OFT, which holds the trust of the public, will be given an overarching role to oversee regulation in the regions.

Any claims management companies' regulator would need to meet the demands of the Hampton Report, says Boleat.

This is where the CSC falls down, and an already established office could gain a few brownie points.

Organisations like the FSA and OFT have begun to look internally at what the Hampton Report means for their regulatory activities.

Included in this, he says, is the need for "significant resources, in particular to put in place professional indemnity arrangement and, if necessary, arrangements for the compensation scheme".

The report recognises that the OFT has experience in this field. In its favour, the CSC has gained approval for its understanding of the claims management industry, which, Boleat says, is generally "not well understood".

The complexities of the market have led to common misconceptions as to how it operates both within the industry and publicly.

It is a theme which insurers unilaterally have agreed on: "We need a regulator which has an in depth knowledge of the industry and the abuses it can entail," says Christine Harragan, Allianz Cornhill Legal Protection development director.

Effective regulator
Steve Thomas, Zurich technical claims manager, adds: "As long as we get an effective regulator, somebody with a relevant background and understanding of the industry, Zurich will be happy."

Can the OFT offer this high level of expertise and understanding?

The CSC has volunteered to work with any potential regulator. Thus, sources say, the CSC could end up being rolled into a statutory body. Yet, if that were to happen, the CSC would first need to show it has the support of the major claims managers.

Boleat suggests that any regulator must, as an essential prerequisite, have the support of the major stakeholders in the market.

Regulation through the CSC would be difficult, says Boleat, because claims management companies have already shown a reluctance to join the industry body.

Boleat says: "At first sight, the starting point is not very promising."

Of the 500 claims management companies in the industry, only 109 are members of the CSC.

Major claims management companies like the RAC, National Accident Helpline and InjuryLawyers4U have all refused to sign up to the CSC charter.Would they be more willing to show support for the OFT?

One source says all three are ready and willing. "They want to drive out rogue companies," says one source.

"Getting rid of less reputable firms would undoubtedly generate more business for well-known brands. Saying 'we have OFT approval' would attract new customers."

It would also give them a vested interest in making sure the regulator is effective.

Limited involvement
Boleat says claims management companies have "very little involvement" in the running of the organisation, thus hinting that industry support of the regulator is essential.

Quite simply, says Boleat, the CSC "does not have adequate resources".

The report goes on: "A specific and therefore small regulator of claims management activities will run into the resource constraints identified by the Hampton Report."

Harragan says: "Funding is an issue. You don't have regulation for regulation's sake. The Hampton Report says if you already have a body there, you should use it - rather than setting up a new body."

What of the already overloaded FSA? It does have the finances essential for any regulator, but the OFT has greater access to government cash. It would mean an expansion of the OFT's regulatory role, which is up for review under the recommendations of the Hampton Report.

The OFT also has monitoring, auditing and compliance procedures in place, which, says Boleat, the CSC does not. Applying those procedures to claims management companies could easily be done.

And with Baroness Ashton's aim to deliver a regulator by the end of the year, applying OFT skills to a new industry could be pushed through quickly.

All this makes for much speculation within the market: who, when and how will the regulator operate?

Baroness Ashton promises the answers will be forthcoming by October. Thomas believes she "clearly has the strong will to make this happen".

The OFT is in pole position, but the race isn't over until the Baroness sings. IT