Nivel de Servicios

19.1Our proposals:

SMS texting: mobile and landline network co-operation with powers to disconnect offending numbers, as they do with prostitutes‟ phone card advertising.

Data Protection and cold calling: no approach to the claimant to be permitted without either:

 the claimant‟s specific authority relating to the accident in question,

preferably in writing; or

 in response to direct contact from the claimant seeking assistance, the

details of which are properly recorded.

financial inducements in advertising just to make a claim should not be permitted

fraud: liability insurers required to produce evidence to support fraud allegations at the earliest opportunity

Credit hire and bodyshops: The ABI‟s sweetheart anti-competitive deal with

the credit hirers as to the charging rates must be ended. The primary obligation to provide a replacement vehicle should lie with the liability insurer. Bodyshops should be manufacturer approved and industry accredited, not just insurer approved. There should be a protocol timetable for maximum default hiring periods and repairs at a fair cost.

effective enforcement: ensure by consolidating regulation with the Legal Services Ombudsman

funding effective regulation: liability insurers as introducers should register as CMCs and pay registration fees, if they wish to introduce claimants to solicitors to support the cost of effective regulation.

Referral fees: empower the regulator to require a CMC or liability insurer to justify either their referral fee structure or the fee in a particular case, in response to a complaint.

19.2 Whilst much of the debate over recent months has been focussed on the Jackson proposals and the Legal Aid, Sentencing and Punishment of Offenders Bill, (LASPO Bill), the real complaints of the public remain largely untouched by them. The Government reforms will have no impact whatsoever on the issue of data protection and cold calling, inducement advertising, insurance fraud or excessive referral fees (though this latter point is more of an obsession for the insurance industry than the public). Whilst they will deny access to justice to many thousands of people, way beyond the world of personal injury as whole, they barely touch the perceived problems raised by road accident cases which have been the biggest source of concern.

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19.3 It is not in the interests of any legitimate CMC, solicitor or claimant to see such abuses continue and we wish to contribute constructively to the debate as to how these problems can be ameliorated. CMCs are in the main sophisticated organisations, providing a range of services beyond mere marketing. They are large employers with staff deploying a range of skills. The legitimate, well-run CMCs make a major financial contribution to the regulation of the industry through their registration fees and should be seen as legitimate businesses.

19.4 Unfortunately there is a rogue element who avoid regulation and are responsible for a very high proportion of the perceived problems: very small CMCs who ignore their obligations under the rules; and unregulated “cowboys” and marketing companies who farm claims without registering as CMCs with the regulator at all. It is unfair to tar with the same brush those properly managed and regulated CMCs, as they do not approve of these operators‟ bad practices any more than do the industry‟s severest critics.

19.5 For example, with issues such as unsolicited SMS texting (which unfortunately is common place) it is the perception that CMCs are doing this, when in fact it is unregulated marketing companies (who are not CMCs) who are looking to cash in. All serious CMCs are very much against the practice (except where the clamant has opted in) and it hurts, not helps them. Indeed at the last RCG meeting, they recognised that CMCs were not responsible.

19.6 Any proposals for reform need to recognise the realities of what is happening and ensure that changes are targeted at the real abuses and abusers of the system, not those who operate legitimately.

19.7 Cold calling is clearly not permitted under the Conduct of Authorised Persons Rules. (client specific rule 4) which regulate CMCs, nor under the solicitors‟ Code of Conduct (rule 7.03(1)), though the FSA rules for insurers are far less rigid. If this is happening, then it is an issue for better regulatory enforcement, rather than for a change in the rules, except for the FSA.

19.8 As unsolicited SMS texting is not done by the regulated organisations but by uncontrolled marketing companies and indeed rogue individuals, merely banning it will be largely ineffective. Attempting to police a ban through regulators will be expensive, time consuming and useless. The best response to SMS texting needs mobile and landline network co-operation as the only viable solution, with powers to disconnect offending numbers, as they do with prostitutes‟ phone card advertising.

19.9 Perceptions of cold calling are often not about cold calling as such, though it may seem that way to the claimant. The claimant (well before becoming a claimant) may have given a general consent for data sharing and for unsolicited contact without realising it, for example when taking out a motor insurance policy. General consent to data sharing meant to prevent fraud or misrepresentation when

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initiating or renewing a policy has in practice become taken by the insurers to authorise much wider data sharing by the claimant‟s own insurer, than the claimant probably intended.

19.10 Data may also have been shared without consent, as seems to be the case behind press coverage of examples of the police, medical practitioners or hospitals and vehicle recovery companies passing on claimant‟s details. This again is a regulatory matter, this time for the Information Commissioner, who should adopt a much more aggressive and proactive approach to enforcement.

19.11 One such form of contact or introduction which can be perceived as cold calling is “third party capture”, through which insurers go direct to the claimant to attempt to effect an early settlement without the claimant having the benefit of lawyers or proper medical evidence. This often results in significant and unfair (to the claimant) undersettlement, as AJAG‟s main briefing clearly demonstrates. 19,12 As cold calling is clearly forbidden for CMCs and solicitors, (but not entirely for insurers) this is a challenge for the regulators, as the rules could not be clearer, for CMCs or solicitors. The grey area of 3rd party capture and other approaches via the insurers needs regulation through better and clearer rules and enforcement from the FSA, to ensure consumer protection both against unwelcome approaches and against the risk of undersettlement. So far they have been unwilling to intervene.

19.13 Approaches to potential claimants should only be permitted in response to contact initiated by the claimant for that specific accident by requiring the claimant‟s clear authority specifically only for the accident in question. A speculative generic authority, perhaps given months or years before the accident, should not be regarded as adequate. There should be no approach to the claimant permitted without either:

a) such a specific authority relating to the accident in question, preferably in writing; or

b) in response to direct contact from the claimant seeking assistance, the details of which are properly recorded.

19.14 Some forms of advertising have attracted criticism, particularly if thought to be offering “inducements” to claimants to bring forward claims. We agree that financial inducements just to make a claim are inappropriate and should not be permitted by the ASA code. Tastefulness or otherwise is a matter for the beholder (and ultimately the effectiveness of the advertisement in attracting potential claimant attention) especially as CMCs and solicitors cannot ever hope to match the advertising spends of the motor liability insurers, but all advertisements have to comply with the principles of the code in being legal, decent, honest and truthful.

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19.15 We consider the problem of alleged fraud at paragraphs 9.17 to 9.22 above. The overwhelming majority of claimants are entirely genuine and should not be castigated for making a legitimate claim. There is no advantage to CMC, solicitor or ATE insurer to pursue an illegitimate case. “Cash for crash” and “phantom passengers” are criminal offences and perpetrators should be prosecuted. But while the insurers routinely allege fraud to soften up claimants, the proven number of cases is comparatively small.

19.16 The latest criticism of victims is aimed at those who suffer whiplash. This is a real and painful condition but the insurance industry seem to be arguing that it does not exist. Under our legal system, in every case it is for the claimant to prove the injury and loss, not for the defendant or his insurer to disprove it. If the claimant cannot prove on the balance of probabilities he has the injury, then he does not win the case.

19.17 Liability insurers should do more to assist CMCs, claimant solicitors and ATE insurers in combating fraud. When they allege fraud, the liability insurers should be required to produce the evidence to support their allegations at the earliest opportunity. This would help them and all others involved to avoid running up unnecessary and wholly avoidable costs and giving credibility to a fraudulent case.

19.18 Credit hire and body shop claims are one insurer‟s scams as against

another. Whilst on the face of it, it may appear counter intuitive, it can be explained by market economics. If one insurer can increase another insurer‟s liabilities, then that will have an upward pressure on the second insurers‟ premium quotes, giving the first insurer a market advantage, if that insurer can inflate its competitors‟ compensation bill more than those competitors can inflate the first insurer‟s claims bill. Of course, one claim in itself would have little effect but the cumulative impact of large numbers does.

19.20 The most obvious two examples of this are credit hire and body shops. There is nothing in it for the lawyer or CMC to inflate the claim as the work is the same, irrespective of these elements‟ value. There is little in it for the claimant,

though the insurance industry itself estimates that credit hire alone adds £44 to the cost of each premium.

19.21 Under the Credit Hire merry-go-round, the object is to beat the other insurer to the claimant. The law quite rightly says that if you have an accident that is the fault of another, you are entitled to have the damage to your car repaired, and while it is off the road, (or until written off) you are entitled to claim for the cost of a replacement.

19.22 If the liability insurer offers the claimant a vehicle, assuming it is roughly equivalent to the damaged car, then the claimant is expected to take it (if he wants a temporary replacement). However, the claimant‟s own insurer, when notifed of

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the claim, now offer to organise a hire car (banking a referral fee in the process) and that cost is then claimed from the liability insurer. As soon as possible after an accident, perhaps within hours, a credit hire company becomes involved. The deal provides for a replacement vehicle, often of a higher standard than the vehicle that is off the road, at ridiculously high daily rates known as the “spot rate” (the rates are actually set under an agreement by the ABI itself, known as the “GTA agreement”) – the cost of which is then included in the claim. Sometimes the clamant doesn‟t even want a replacement, but is browbeaten into taking one. Hiring periods often start on a Friday, to straddle a weekend which pushes the period up. The costs mount up rapidly, especially if the liability insurer takes its time to inspect the vehicle and authorise repairs or write it off. In the end, it becomes cheaper to write off what may be a perfectly serviceable car of comparatively high value than risk running up hire bills. To demonstrate the impact of this, appendix 12

shows a comparison between the ABI agreement and the rates available to the public wishing to hire a car through the internet.

19.23 The body shop scam works through the claimant‟s insurer‟s sweetheart deal with a body shop (in return for a referral fee) The insurer quickly refers the claimant to their preferred vehicle repairer, who produces a repair estimate that is out of all proportion to the damage: replacing a bumper that only needs a touch up of paint, for example. Linked to the car hire‟s ever increasing bill, the liability insurer is faced with Hobson‟s choice and the excessive high value repair is carried out. Again, there is nothing in it for the lawyer to inflate the claim as the work is the same, irrespective of the repair cost. This is compounded by the insurers‟ requirements that certain products, such as a particular brand of paint, are used in the repair. There is no benefit to lawyer or CMC in this practice. CMCs get no referral fees from bodyshops. Referrals are mainly through the claimant‟s own insurer who beat everyone to the draw.

19.24 These “ancillary services” are vital sources of income to insurers (for example, ancillary income including referral fees made up 54% of Admiral's 2011 first half year UK motor profit) not only costing the claimant as part of the insurance premium but also adding significantly to the claim‟s overall bill to be met by the liability insurer. As they are in it together, the insurers, car hirers, and body shops all profit and the loser is the motorist in his inflated premium. 19.25 The ABI‟s sweetheart anti-competitive deal with the credit hirers as to the charging rates must be ended. The primary obligation to provide a replacement vehicle should lie with the liability insurer. Bodyshops should be manufacturer approved and industry accredited, not just insurer approved. There should be a protocol timetable for maximum default hiring periods and repairs at a fair cost.

19.26 Any referral fees for both credit hire and bodyshop repairs should be

109 the industry or imposed by the court. In any event, the proposals above would have a market forces effect in pushing down such payments. The court, as a failsafe, should be empowered to go behind any claim to enquire into the reasonableness of any charges. These proposals preserve the claimant‟s right to a

replacement vehicle and to have his car repaired, but do so at a reasonable cost and in a fair and balanced way, with appropriate safeguards against exploitation by any party involved.

19.27 There is a strong case to consolidate the diverse bodies involved in referral fee regulation, to ensure consistency and effective enforcement. As indicated in section 16, regulation of the existing rules has not been effective, which has contributed to the perceived problems. One option would be to transfer responsibility for regulation across the industry of all matters relating to client introductions and referral fees to a single regulator. A possibility for this role could be the Legal Services Ombudsman: not only for CMCs, but also for solicitors and insurers when acting as referral agencies. This would achieve effective “end to end” consistency in regulation and enforcement, presently absent.

19.28 The liability insurance industry, which is the most vocal critic of CMCs, accounts for 22% of road accident claimant introductions to solicitors. Indeed the high figures they quote as examples of referral fees are actually those charged by insurers themselves to their own panel firms, rather than those raised by CMCs, who are in a more competitive place in the market. Data transfer issues are also primarily due to insurers sharing information. The liability insurers are thus a major contributor to the problem, whilst being the most lightly regulated introducer.

19.29 When adopting the role of a de facto CMC in this way, liability insurers should face the same regulatory regime as CMCs. Liability insurers should therefore be expected to register as CMCs, if they wish to introduce claimants to solicitors

for a referral fee. CMCs, especially the larger ones, pay substantial fees to meet the cost of regulation when registering with the regulator. Liability insurers should pay registration fees similar to CMCs, to support the cost of effective regulation. 19.30 Critics of the referral fee system infer that the profit margin is very large, but this is not the case. The margins are tight. Critics overlook the services that referral fees pay for, including not just the design and commissioning of advertising in the media and on line, but also the administration of call centres, including screening of claims; and the maintenance of law firm panels. Referral fees are the most cost effective way of providing these services. However, one way to address any concerns would be to empower the regulator to require a CMC or liability insurer to justify either their fee structure or the fee in a particular case, in response to a complaint.

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APPENDIX 1: CONSUMER SURVEY

AJAG