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Counter claims

Chartered Insurance Institute chief Peter Hales has launched a bitter attack against claim management firms, branding them a national disgrace and blaming them for the surge in unjust and vexatious complaints against life offices and advisers.

Speaking at the Personal Finance Society conference in Birmingham last week, Hales, who is a board member at Norwich Union, also called for claim firms to be regulated as a matter of urgency and brought in line with the rest of the industry.

With the Financial Services Compensation Scheme announcing earlier this month that IFAs can expect yet another increase in the compensation levy due to a predicted threefold increase in endowment complaints, there is no doubt in many advisers’ minds where this threat springs from.

Hales believes that claim farmers are driving a compensation culture, encouraging scurrilous complaints and bogging down people who have genuine complaints.

Anand Associates managing director Bhupinder Anand says: “These firms are making the lives of many IFAs a misery and destroying families. Many of these firms are unethical and should be regulated.”

Endowment Justice is a claim management company and director Marianne Fitzjohn says relentless criticism of claim firms is unjustified and is based on misconceptions. The first is that no win, no fee firms encourage complaints from opportunists who believe they have nothing to lose. She claims that her firm rejects a third of cases and that the majority of those that it does take on are upheld by the FOS.

She believes the financial services industry has only itself to blame for the strong foothold that these firms have gained.

“If the industry stood by the FSA’s treating customers fairly principles and handled complaints correctly, then there would be no place for us. The fact is that many companies mislead customers and ignore complaints,” she says.

Chartered Insurance Institute group public affairs director John Ellis also believes that the industry should look at the breakdown of its complaint-handling procedures rather than just blame it all on the claim companies.

He says: “I do agree that the industry should look at its own procedures before lashing out. There has been a steady improvement in complaint handling but there are complaints that are still not being handled correctly which is why people look elsewhere for help.”

Claim firms are handling 15 per cent of endowment cases that go to the FOS. Does it come down to a classic dilemma – are claim companies a symptom of the compensation culture or one of the causes?

FOS spokesman David Cresswell says there is undoubtedly a demand for claim firms, stemming from consumers’ lack of confidence in the system. He also believes that society is becoming more litigious and combative and less prone to any attempts at reconciliation.

But equally, Cresswell believes that the very existence of claim farmers and their aggressive targeting of customers is encouraging people to make claims that they would not otherwise have made. He believes argues that this is not necessarily a bad thing and that customers who are encouraged to make complaints by third-party firms are not always trying it on. He says, however, that the public needs to understand that they can go direct to the ombudsman for free and that the appointment of a claim firm will make no difference to the outcome of their case.

It is difficult to know for sure whether claim handlers have prompted an increase in fraudulent complaints, particularly as the FOS does not reveals how many frivolous and vexatious claims it receives and where these complaints come from.

Should claim farmers be regulated? The companies currently operate under a voluntary code run by the Claims Standards Council. Provisions for statutory regulation are on their way in the form of the Compensation Bill, although it is not clear whether it will be the FSA, the Law Society or a new body that will take on the job. Under the bill, ambulance chasers will have to comply with rules and a code of practice to ensure the public are not misled by aggressive or inappropriate advertising with penalties running up to maximum prison sentences of two years.

Fitzjohn says that self-regulation has not worked but says the Law Society rather than the FSA, should regulate claim firms.

But FOS chief ombudsman Walter Merricks points out there could be a flawed logic in IFAs baying for regulation as this could be a valuable marketing tool for claim companies.

Cresswell adds that claim firms’ promotions are already monitored by the Advertising Standards Agency and argues that those who call for more regulation should consider what they want regulated.


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