The claims management market is exceedingly busy at the moment. The announcement of the PPI deadline for 29th August 2019 means businesses are working harder than ever to encourage as many customers as possible to make a claim. With over £30 billion already paid to consumers, the industry is receiving a good sum of money by working on behalf of consumers — an amount which is likely to increase as the deadline nears.
Logican Solutions Ltd offers a range of industry-specific products, including claims management software for reputable PPI claims companies. Here Yaakov Smith, the owner and founding manager, discusses what the future of the claims management market will look like.
The PPI scandal saw hundreds of new businesses emerge in an attempt to make money from PPI claims. While some businesses couldn’t stay afloat in such a competitive market, others were given heavy fines for excessive cold-calling and taking money upfront from customers. These rogue PPI claims companies have caused the claims market to come under fire in recent years.
Not all claims companies are bad — for many people, they are the ideal alternative to making an independent claim. However, the negative connotations still exist. As a result, these companies are fighting hard for custom and to show customers that they are simply trying to offer a service that many people find useful and time-saving.
Despite being managed by the claims management regulator, some companies have disappeared as quickly as they appeared and taken many consumers’ hard-earned money with them. However, the lack of regulation is finally being addressed. As of April 2019, the Financial Conduct Authority will be regulating these businesses. Companies must abide by stringent rules in order to be registered. For those companies already working above board, the new regulations won’t make a large difference to how they currently operate.
The FCA has outlined a number of proposals for claims companies. These include:
- Giving customers a short summary outlining all fees and work that the company will do on their behalf
- Informing customers of any free alternatives to using a claims company
- Recording all phone calls and keeping them on record for one year
Claims companies will need to go through the FCA authorisation process to be registered and must do so before April 2019.
Fee cap for claims companies
When the FCA takes over the regulation of claims companies, there will be a discussion about a fee cap on how much customers are charged. Until then, the government has passed an interim fee cap, which came into effect on 10th July.
The fee cap means that all PPI claims companies must cap their fees at 20% + VAT (24% inclusive) on successful claims. Many companies have been charging considerably more over this proposed figure.
At the other end of the spectrum, some claims companies have been working at this fee (or lower) since their inception. While this will mean these companies will not need to adapt, for others, the fee cap could cause significant financial problems.
What Will Happen to the Claims Management Market?
The best claims companies have been operating for a decade or longer, some having made claims on behalf of people before the severity of the mis-sold PPI scandal was exposed to the wider public eye. These companies should survive, despite the regulatory changes and fee cap. This is because their business models will likely already operate on the basis of providing fair services for a fair price to consumers. Low fees and good service also equate to excellent reviews, a factor many consumers look to when choosing a company.
It’s likely that companies that have been charging higher fees will have to make significant changes to their business model, which could result in job losses for hundreds of employees. Some claims companies have expressed their concern about the damaging effect the new regulations will have on the claims management market.
What we may see is that only a select few companies will still be working on PPI claims between April and the August 2019 deadline. Companies that wish to avoid regulation from the FCA or still want to charge above the fee cap may turn to a different market.
The fee cap and new regulations will be beneficial to the wider public. The FCA’s move to regulate debt management companies in 2014 edged out those that were attempting to swindle vulnerable individuals in debt out of more money. The FCA’s regulation of claims companies should have a similar benefit.
However, if another large mis-selling scandal emerges within the next few years, we may see the companies potentially under threat rejoin the market