Claims Management Companies – A rapidly changing landscape

Posted: 15th March 2019

Claims management companies (CMCs) have been a significant driver of financial services complaints for a number of years now – and, in that time, there have been some pretty major issues for them to capitalise on.

CMCs operate in a number of sectors, however, not just financial services. The Ministry of Justice (MOJ) Claims Management Regulation Annual Report for 2017 / 18 gives some targeted insight into the CMC landscape across their six areas of regulated activity, the details of which are outlined below.

A background to the sector

The MoJ noted that the total number of authorised CMCs fell between 2016 and 2018 in all sectors (except housing disrepair).

The peak level of annual turnover for CMCs was in 2013 when the number of operators had already begun to decline. There has been a degree of variation in turnover since then but, overall, it has remained fairly stable. The number of authorised CMCs has followed a downward trend. Those still in the market are obviously getting a larger share of the available revenue.

PPI complaints remain the most prominent issue within financial services, but this will likely tail off after the August 2019 time-bar. Despite this prominence, the number of firms operating in this area is relatively low, with six large CMCs submitting more than 50% of all PPI complaints. This is similar to the landscape around complaints relating to Packaged Bank Accounts (PBA), where just five CMCs account for a large proportion of all PBA complaints. CMCs operating in payday loans rose by 45% in 2018, but the volumes remain low comparative to PPI still.

In terms of turnover, the two dominant sectors are financial services (£600mn in 2017 / 18) followed by personal injury (£157m in 2017 / 2018).

What does the future hold for financial services CMCs?

The major change for the regulation of Financial Services CMCs is that they will transfer to the FCA from the 1st April 2019, away from the MoJ.

CMCs whose activities include representing customers in claims and complaints have until the 31st March 2019 to apply to the FCA for Temporary Permissions to carry on regulated activities after 1st April.

CMCs that have not applied for Temporary Permissions before the 1st April must stop regulated activity. CMCs with Temporary Permissions then have until the end of May to apply for authorisation. If they do not do so, the FCA will allow them 30 days to wind down their regulated activities.

What are the new focus areas?

CMCs are starting to become more active within particular financial services sectors, including consumer credit (with a particular focus on responsible lending and, increasingly, shifting towards motor finance) and mortgage lending (with a focus by one particular CMC on standard variable rate mortgages). Pensions liberation, although welcomed by many, has also created the potential risk of CMC activity linked to potentially poor customer outcomes (for example, with higher risk-defined benefit product transfers).

Other market interventions, including in areas such as commission disclosure and fair pricing, are also piquing the interest of various claims management firms across multiple financial services sectors.

One thing is certain, CMCs will continue to be working hard to find avenues for their businesses and uncover issues that they can turn to their advantage. This will put even further emphasis on businesses to proactively rectify potential issues and enhance controls to prevent issues from arising in the first place.

Adapting to the new landscape

While the end of PPI complaints may be in sight, now is not the time for financial services firms to be complacent about the future.

CMCs that have made a success of their business by representing customers in large-scale issues within financial services will certainly be looking to continue that success in other areas. Forewarned is forearmed, after all, and horizon scanning is key to being prepared for a new influx of CMC activity, even if this comes from unexpected quarters. Operational resilience and preparedness are key.

Firms should also continue to ensure that their products and services deliver fair outcomes to customers, and make sure their internal policies and procedures undergird a customer-centric culture. Robust root cause analysis should also be undertaken to highlight areas of potential concern and allow for effective remedy.

Claims management companies, to the ire of some, remain a significant gear in the financial services machine, though regulatory change and pressure from increasingly vigilant firms are beginning to squeeze them out of their niche. However, it’s unlikely we’ll see these companies leave the stage anytime soon.

There will always be large-scale issues and there will always be complaints and claims to be made.

*The statistics utilised in this article were drawn from the Claims Management Regulation Annual Report 2017 / 18, Ministry of Justice, 2018