Daniel Bentley - Parliamentary Correspondent

The government spelt out this week some areas where claims management companies will be strictly regulated.

New requirements in the Compensation Bill include professional indemnity insurance, bringing the sector into line with lawyers, accountants and financial advisers.

The proposed claims management regulator will also be charged with ensuring companies provide transparency of charging.

Constitutional Affairs Minister Baroness Ashton of Upholland said: "I am very concerned about the transparency of charging.

"It is something that we should probably include in the minimum criteria that the regulator must consider in order to satisfy itself that an applicant is fit and competent to provide the type of services that he wishes to provide."

Claims management companies will also need to pass a competency test to achieve authorisation when the industry is regulated later this year.

Baroness Ashton added: "The regulator will need to monitor to make sure that those conditions are met and must have the ability to suspend or withdraw if there is a concern that they are not."

Lord Hunt of Wirral, who called for the indemnity insurance provision, said it would give claims management companies "another incentive" to be transparent and responsible.

He said: "Unless they clean up their act, many claims management companies will struggle to get this kind of cover. Even when they do, they will find the premiums pretty high."