MGA warns that no win, no fee firms threaten insurers’ stability

No win, no fee claims management companies (CMCs) are becoming an increasing threat to the financial services sector, according to Alexander Barry, claims director at MGA Collegiate Management Services.

This genre of CMCs has become an entrenched feature of the corporate landscape since their establishment in 2006. And, although these firms are expected to assess the validity of claims, many CMCs have been found to employ a high volume, technology driven approach to claims management and progression that ultimately increases costs and complexity for financial service providers, Barry told Insurance Times.

In part seeking to mitigate this impact, the FCA and Financial Ombudsman Service (FOS) announced a joint decision in November 2024 to impose fees on CMCs that brought cases forward to the FOS.

Effective from 1 April 2025, this reform means that CMCs will be required to pay a fee of £250 per claim – reduced to £75 if the complaint is upheld. These fees will come into play after each CMC has rasied a maximum of 10 cases free of charge.

However, Barry believes this move alone is “insufficient” to address the growing burden these CMCs place on insurers, independent financial advisors (IFAs) and wealth managers.

He said: “With the maximum ombudsman award now at £430,000, complacency by insurers would be dangerous.

”We see firsthand how these firms exploit regulatory loopholes, making it clear that sound risk management and adherence to [the] FCA’s Consumer Duty alone are not enough to protect businesses.

“A broader regulatory rethink is required.

“Without stricter regulation, these firms will continue to drive up costs, create unnecessary complexity and undermine consumer confidence.”

Legal firm leniency?

Barry explained that another pressing concern in the claims arena is the involvement of law firms in claims management.

Unlike FCA regulated CMCs, law firms fall under the oversight of the Solicitors Regulation Authority (SRA), which Barry commented is widely regarded across the industry as having a more lenient regulatory approach.

Many of these law firms rely on damages-based claims agreements, Barry continued.

“Many FCA regulated CMCs and their law firm counterparts risk harming the very consumers they claim to represent,” he said.

“Instead of ensuring fair compensation, they often take up to 30% of a consumer’s award in fees, all while clogging the system with unmeritorious claims.”

Impact on insurers

Barry predicted that pre-2021 motor finance agreements are shaping up to be the next lucrative battleground between no win, no fee CMCs and the insurance sector.

“These firms use slick advertising and cold calling tactics to pressure consumers into making claims they don’t fully understand,” Barry noted.

“And when consumers want to back out, they’re often met with unreasonable fees.”

As the insurance sector grapples with the nuances of CMC driven claims, Barry emphasised that professional indemnity (PI) underwriters for financial advisors must play a role in shaping the next phase of regulatory reform.

“The status quo is no longer sustainable,” Barry said.

“We need meaningful action now to prevent further damage to financial firms, their insurers and the consumers they serve.”