Industry fears two-tier system if trade unions are exempt from Compensation Bill

The government's decision to exempt trade unions from the Compensation Bill has been met with criticism from the insurance industry.

The move has prompted fears of a "two tier" regulatory regime that could lead to rogue claims management companies (CMCs)attempting to set up as unions to avoid the regime.

Andy Wigmore, policy adviser for the Claims Standards Council, said: "We have two claims management companies which are trying to set up as unions now, enticing members who have had accidents."

The warnings come as the government revealed that the Constitutional Affairs secretary, Lord Falconer, would be responsible for regulating CMCs. The announcement was predicted by Insurance Times (News, 9 February).

Parliamentary under-secretary of state for Constitutional Affairs, Bridget Prentice, told the Commons this week: "The core elements of direct regulation will be: the Secretary of State as regulator, with day-to-day responsibility for regulation delegated to a civil servant with the appropriate skills and experience; and a monitoring and compliance function, contracted out to a trading standards unit responsible for supporting the Secretary of State."

This will be further supported, she continued, by "a non-statutory advisory committee made up of representatives of the financial services and insurance industries, the legal profession, consumer groups and the claims management sector."

The move is an interim measure, however, with proposals to bring CMCs under the regulatory remit of the Legal Services Board once the Legal Services Bill has passed through parliament.

The search is now on for a local authority trading standards department to which the monitoring role will be effectively outsourced.

Bodies will have until 5 July to submit a bid for the tender. There will be a selection after the Bill is given Royal Assent, with the aim of setting up the regulator by October.

Martin Saunders, motor and casualty claims manager for Allianz Cornhill, welcomed the decision, but said there was still room for the government to consult with insurers.

Steve Thomas, technical claims manager for Zurich, said: "We have consistently said there is no justification for unions to be exempt. If they are so good then what have they got to hide from the regulator?"