Legitimus Solicitors

Bulletins

Is This The End of The Road for Claims Management Companies?
Date: 26-11-2012


On the 19th November the government outlined its proposals to reduce from £1200.00 to £500, the amount of  fixed recoverable costs for Claimant solicitors who process claims through the RTA Portal, for claims with a value of up to £10,000. For claims valued up to £25,000 the fixed fees will be set at £800.00.

Similarly for solicitors who run public liability or employer’s liability claims the recoverable costs will be £900.00 for cases up to £10,000 and £1600 when the case is worth up to £25,000 with these costs expected to come into force when the RTA Portal is extended in April 2013

The new costs regimes are likely to come into force on 1st April 2013, when the RTA Portal is extended.  At the same time the payment or receipt of referral  fees for claims involving personal injury or death will be banned.

The costs reductions, whilst expected, have still caused shockwaves amongst firms of claimant solicitors. Now that the proposals as to the amount that the fees will be reduced to have been announced, it seems that the reality and imminence of the implementation of the regulations, is hitting home.

In the case of RTA portal fees, the thinking behind the government’s proposals seems to have had much to do with the fact that referral fees will be banned. As referral fees (the amount paid per claim by a solicitor to a Claims Management Company or to another body such as an Insurance broker) range from a couple of hundred pounds through to as much as £1000, the £700 reduction in fixed costs is seen as taking out the element of the fixed costs that the solicitor would have to pay out to the CMC by way of referral fee. As there will no longer be referral fees to be paid, so the thinking goes, the solicitor will be left with the same amount of costs that he presently has, after taking into account payment of the referral fee (which is not a recoverable disbursement to be claimed from paying party ie an insurer or Local Authority).

Claimant solicitors who rely heavily for their caseload on buying claims from CMC’s will have to undertake a drastic remodelling of their businesses. They are likely to have to start marketing their services themselves much more than many do at present, in order to attract clients; that is if they decide to continue dealing with PI work as the sole, main or significant part of their practices.

For many CMC’s this may well be the end of the road, unless they are able to enter into ABS’s with solicitors firms. Many Claims Management Companies sole income is derived from the selling of claims onto firms of solicitors.

Insurance companies have long argued that these reforms are necessary to reduce the amount of money paid out to solicitors to cover legal costs that, it is argued, are often out of proportion to the amount of damages actually recovered on behalf of their claimant clients and in some cases out of proportion to the amount of work actually involved in dealing with the claims. The ‘Insurance Industry’ has indicated that if these results are achieved then it will ultimately be reflected in reduced insurance premiums for customers.

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