Briefing: Will CMCs morph to adopt motor focus post-whiplash reforms?

By Editor Katie Scott

Yesterday, Insurance Times and law firm Carpenters Group hosted the first Fraud Charter virtual roundtable event of 2021, attended by senior fraud professionals from a range of businesses, including insurers, price comparison websites and even the FCA.

Following further clarification on the rules surrounding part one of the whiplash reforms, which includes the implementation of the Official Injury Claim portal on 31 May, one key contentious topic that reared its head during the group discussion was the role of claims management companies (CMCs).

In particular, my co-chair, Carpenters Group director Donna Scully, revealed her concerns about CMCs changing their behaviour post-reforms in a bid to boost income amid the new system.

She believes “CMCs are going to be in motor more than they are now”, especially as “two of the biggest CMCs in the UK have said ‘we’re going to do motor and we’re going to do it in-house’”.

She continued: “I heard of a CMC who are potentially talking about charging [a] 49% cut of the client’s damages in the new portal. Because the amount of damages [are reduced] in terms of [the] tariff for whiplash and there are less fees, so I think CMCs are not going to be panelling out to solicitors post-reforms, they’re going to be doing it themselves. We’re going to be seeing different action and behaviour from them.

“Plus, they have to make money and I know there’s commission on credit hire, credit repair, but I think they’re still looking to make money on the injury [claims].

“Obviously 49% is astronomical and not acceptable. If we’re starting to see behaviour like that now, then that has to be reported to the FCA.”

Scully added that many in the industry suspected this situation may occur and that now, it was coming into fruition.

Gaining permission

Barbara Kubis-Labiak, the FCA’s technical specialist within its claims management companies department, informed Fraud Charter attendees that as of last week, 690 CMCs had been authorised as part of the FCA’s authorisation gateway process – this number includes insurance firms that have applied for claims management permissions while also holding other regulated activity permissions.

“Quite a few of them are general insurance intermediaries who have applied for claims management permission, or consumer credit firms or so on,” she noted.

Kubis-Labiak emphasised that the FCA still reviews its strategy around CMCs regularly, following the onslaught of ‘Dear CEO’ letters it published to the sector last year. The last of these letters, published in October, contained “some strong messages” for these businesses around phoenixing and “ongoing problems with financial promotions”, she added.

Despite the FCA clearly zoning in on badly behaved CMCs, there is a worry of potential oversight gaps as it only regulates CMCs that deal in personal injury claims – those that solely focus on credit hire or repair, for example, do not come under the FCA’s jurisdiction.

Following the implementation of the whiplash reforms, where industry players may look to non-whiplash-related elements of a claim to bolster compensation amounts outside of the whiplash tariff table, I wonder if there is the potential for fraudulent or exaggerated claims to bypass the FCA’s gaze here?

Perception problems

While on the topic of exaggerated claims, I thought Carpenters Group’s head of public affairs Andrew Thornley made an excellent point when he said that the general public’s poor perception of insurers could lead to an increase in exaggerated claims.

Citing the FCA’s recently published Financial Lives report, he said that many individuals believe insurers don’t want to pay claims, therefore if they have to make a claim, policyholders may be more inclined to exaggerate in the hope that this will see them receive some amount of financial compensation rather than nothing at all.

I would add that many policyholders don’t view exaggeration as a type of insurance fraud, which increases the chances of them taking this action.

It seems the industry still has a battle on its hands when it comes to erasing the ‘us versus them’ mentality, which was partly instilled by the FCA’s business interruption test case.

Impacting the industry

As an aside, it was also brilliant to hear from David Parkin, the deputy director for civil justice and law at the Ministry of Justice (MoJ), at yesterday’s Fraud Charter event. In fact, he asked if the Fraud Charter group would form a feedback loop with the MoJ, to report back on any unintended consequences or fraud opportunities that may arise following the implementation of part one of the whiplash reforms in May.

This clearly signals the influential and impactful role Insurance Times’s Fraud Charter is having within the industry, thanks to the amazing amount of expertise and sector knowledge displayed by Fraud Charter attendees.

Sharing best practice across the sector is clearly vital in contributing to the industry’s continuous improvement and it’s a privilege for Insurance Times to play a role in that alongside such insightful industry participants.