Claims management services: parasitism encouraged by the rich financial rewards of the law?
Claims management services
Since the introduction of conditional fee agreements (“no win no fee”) in England, many claims management companies, formed to profit from such agreements, have been heavily criticised for high-pressure sales techniques and the high cost of their services, which can significantly reduce the amount of compensation received by claimants.
In 1995 English lawyers were allowed to take on cases on the basis that, if they lost, they would not charge. If they won, they would charge a success fee calculated as a percentage of costs to recompense them for the risk of not being paid.
In April 2000 personal injury cases were taken out of the legal aid scheme and replaced with conditional fee agreements.
Between 2000 and 2004 there were, reportedly, 130,000 references to the Citizens’ Advice Bureau related to rogue claims management companies and poor legal advice.
Part 2 of the Compensation Act 2006 responded to these criticisms by introducing strict regulation of the claims management industry.
The Act states that all claims management companies must be registered. They are obliged to comply with detailed rules which are designed to protect consumers. For example, the Act makes it unlawful for representatives of such companies to visit accident victims in hospital to encourage them to make claims.
In August 2009 the Ministry of Justice reported that 100 claims management companies had lost their authorisation to provide services since the Act of 2006 came into force. The reasons for the disqualifications included:
Criminal convictions for fraud.
Some companies targeted consumers who were in debt.
There was a trend towards high pressure cold calling from call centres, including making unsubstantiated claims and encouraging people to hand over fees on the spot.
Claims management companies are now prohibited from advertising in hospitals and doctors’ surgeries.
These companies can be seen as an example of the parasitism encouraged by the rich financial rewards of the law. They are a clear example of commercial enterprises calculating and making profit from the misfortunes of others.