The government has published details of its forthcoming Compensation Bill to help tackle the rising compensation culture facing IFAs over the mis-selling of financial products, such as endowment policies.
The Bill sets out the proposed legislative framework for the regulation of claims management services and “will provide for regulation that is effective, proportionate to the risk involved, and creates the minimum burden necessary,” says the Parliamentary Under Secretary of State for Constitutional Affairs, Baroness Ashton of Upholland.
IFAs who are concerned about possible litigation should feel reassured because the Bill contains provisions on the law of negligence which “takes the social value of activities into account and they will not be found liable if they adopt reasonable standards and procedures,” says Ashton.
Regulation will be applied initially to areas where the government feels consumers are most at risk: personal injury; criminal injuries compensation; employment; housing disrepair; and claims for redress in relation to the mis-selling of financial products such as endowment policies.
The Bill makes it an offence for a person to provide regulated claims management services unless:
The Bill allows the Secretary of State to establish a body which is “competent, has appropriate governance and other management arrangements in place, and will provide benefits to consumers” to regulate the claims management sector, which will include deciding which people should be authorised, says Ashton.
She adds that the Bill forms “part of a wider programme of work which is being taken forward across government, and in partnership with stakeholders, to tackle perceptions that can led to a disproportionate fear of litigation and risk averse behaviour; to find ways to discourage and resist bad claims; and to improve the system for those with a valid claim for compensation”.
Vera Cottrell, policy officer at the Association of Independent Financial Advisers (Aifa) says: “We have been hoping for proper regulation of claims management companies for a while. We are very pleased that the Bill has been published and that financial products are taken into account.”
Cottrell hopes the Bill will make a difference for Aifa’s members and set standards for the industry as a whole.
Likewise, Sue Anderson, press officer at the Council of Mortgage Lenders (CML) believes the Bill should help allay advisers’ fears that firms are “out there egging on consumers to make claims”.She adds: “A regulated environment makes sense and will help ensure fees and charges are transparent. People who use claims management services will know what they are getting.”
Ray Boulger, senior technical manager at Charcol, also welcomes the Bill and believes it is “well overdue”.
He says a particular problem with some claims management companies is the spam email they send and the adverts they put in the press to encourage consumers to make a claim if their endowment policy is under-performing. But, he argues this is not the issue – the question is whether the consumer has been mis-sold. Boulger says this is bad practice and believes claims companies should advertise in a more responsible way.
“The sooner they are regulated, the better,” he adds.
Another problem is that even if a policy has been mis-sold it is not always in the consumer’s interests to claim because the endowment policy might have performed well. Boulger says consumers need a qualified person to give this advice but companies which offer claims management services are often not authorised.
Likewise, Legal & General supports the proposal to regulate claims management companies because, it says, it is important that consumers are not put at risk of losing any redress they are due.Paul Timmins, director of customer resolutions, say: “There are some very competent claims management firms but customers should have the reassurance that their claim is handled to a required standard and if poorly advised that they have the opportunity for redress."
Meanwhile, although the Association of British Insurers (ABI) says it supports the proposal to regulate claims management companies, it argues the Bill will only deliver full benefit if it is the first step in the reform of the UK’s compensation system.
“This Bill should mark the start of much-needed comprehensive reform of our compensation system,” says Nick Starling, the ABI’s director of general insurance.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
Putting the tech into protection
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Launching later in 2019
£80bn funds under calculation