Beware claims management companies promising cash

Beware claims management companies promising cash

Financing A Car
Financing A Car

Many victims of workplace accidents and ‘no-fault’ motoring crashes are auctioned off to the highest bidding solicitors. Tony Levene reports

Where there’s a smash, there’s cash. And if you sign up with one of the dozens of claims management companies targeting people who have been involved in no-fault car crashes or have suffered an accident at work, the claims handlers will be the first to cash in.

Many claims companies auction details of customers and their claims to specialist solicitors, earning up to £750 for each case that comes their way. The individuals involved are unaware of this and will not even have a say over which lawyer takes on their case.

“Victims of injury, and innocent parties in motor accidents are routinely auctioned off to the highest bidder, rather than being put in touch with the best solicitor for the job, or even one in the part of the country where the victim lives,” says Mike Payne of PI Legal, a website that puts claimants in touch with suitable lawyers without adding a fee. “It seems a person’s misfortune can be traded like a commodity.”

Some claims companies compile bundles of similar claims – “slip and trip” accidents, sports injuries or road accidents, for instance – and sell these to the highest bidder. Bundles come in different sizes, from 10 to 100. The payments are known as referral fees.

The lawyers do not know the details or the claim size of each case, except that a claims company thinks it has a strong chance of winning a payout. The solicitors who handle the claim add the auction fee to their own costs.

Payne says that, in many cases, the victims don’t know who will represent them until they hear from them. “The solicitor could be good or bad, but they now represent you. You can legally ask for another, but you are not told of your right to do so,” he says.

“Being involved in an accident is traumatic, and the most sensible thing to do is to put the injured party directly in touch with the most appropriate solicitor to resolve the claim as quickly as possible. If a claim is farmed out to the highest bidder rather than the most suitable, it raises questions of transparency and choice,” he says.

Setting up in business as a claims firm is easy enough, he adds. “There are no legal exams to pass, while the Ministry of Justice only applies light-touch regulation. I’ve seen emails from some claims management companies which suggest those running these firms are virtually illiterate”.

PI Legal believes its no-charge model for referrals means victims end up with the most appropriate solicitor rather than the one prepared to pay the most. It earns its money by being part of a larger solicitor services firm which sells other services.

If you wish to pursue a claim, talk to solicitors in your local area.

Most will give a free initial consultation. Or you could try the website of the Association of Personal Injury Lawyers.

Legal costs on insurance claims are adding to premiums. Last week, the acting director general of the Association of British Insurers, Maggie Craig, revealed in a letter to the Guardian that for each £1 insurers pay in compensation, they pay a further 40p in legal costs. “Legal costs are disproportionate and are paid for by everyone in society, whether it be British businesses and motorists having to pay higher insurance premiums, or the NHS and local authorities having to divert money from frontline services to pay for the costs of lawyers,” she wrote.

Conservative leader David Cameron has called for an end to the commercialisation of lawyers’ incentives, while the Legal Services Board has set up a consumer panel to examine referral fees.

When is a financial adviser not an adviser?

When is a firm that offers help with claims not a claims management company?¬ And when is a firm that offers advice on investments not a financial¬ adviser? The answer to both is one and the same: when it is a “membership” organisation.

A Nottingham-based business, one of a small, but growing number of firms offering financial advice and help with compensation claims, but not regulated either by the Financial Services Authority (FSA) or the Ministry of Justice.

Instead, it charges “membership fees” of up to £995 a year. It recently sent a mailshot to investors stating “our research has indicated that, at some point, you have had exposure to the small cap/penny share markets”.

It went on to detail how the FSA had fined a number of stockbrokers, many of which are now in liquidation or default. Investors who believe they were mis-sold shares can claim up to £48,000 (the limit is now £50,000 but is still £48,000 for these firms) from the Financial Services Compensation Scheme. The FSCS says it offers help to fill in the form, and that most claims are cut and dried. “By the time a firm is in default, the facts should be there.”

But the company says this is not so. “These are quite long forms and can give you a headache. You need to prove a civil liability to make sure your claim is eligible. We look through the FSA conduct of business rules to see where the mis-selling took place. A claims management company would have a similar procedure but take a percentage if successful. We work on a membership fee basis with no other motive,” says one employee.

A director for the firm, adds: “We also give an in-depth appraisal of shares, including restricted holdings, but as we don’t advise on whether you should buy, sell or hold, we do not need FSA regulation.”

According to Ministry of Justice regulations, firms “advertising for, or otherwise seeking out (by canvassing or direct marketing) persons who may have a cause of action” and firms “advising a claimant, or potential claimant, in relation to his claim or cause of action” must be authorised.

The rules state that “it is an offence to provide the regulated services unless authorised”.