A proposal to prohibit the offering of cash inducements as a reward for submitting a claim for compensation has been outlined by the Ministry of Justice.
Set out in a new consultation, the planned amendment to the Conduct of Authorised Persons Rules 2007 forms part of the Ministry’s response to Lord Young of Graffham’s report on the perception of a health and safety compensation culture.
In his report, Lord Young identified the promotion of incentives to encourage consumers to make a claim as a particular problem, saying: “Today, accident victims are given the impression that they may be entitled to handsome rewards just for making a claim, regardless of any personal responsibility – adding to a real sense that we live in an increasingly litigious society.”
The MoJ estimates that less than 5 per cent of the entire claims-management sector currently offers inducements, but most such businesses operate within the personal-injury sector. Examples of the type of advertising that would be banned are: ‘We’ll pay you £200 immediately after our solicitors approve your claim’, or ‘As soon as we accept your claim, we promise to give you a £150 cash advance’.
Such inducements are non-returnable and paid upon acceptance of a claim by a solicitor. This means it does not constitute a breach of the Conduct of Authorised Persons Rules, as the inducement is not paid immediately. Some companies also promise to enter potential customers into a prize draw for a high-value gift.
The rule change is a targeted restriction, which the MoJ believes is unlikely to have a detrimental effect on the majority of legitimate claims-management businesses.
The Ministry’s head of regulation, Kevin Rousell, said: “We have accepted Lord Young’s report and plan to take the necessary steps to ensure that the concerns raised about the marketing practices of some claims-management businesses are tackled at the earliest opportunity. This consultation is an important step towards tackling irresponsible marketing.”
An Impact Assessment suggests that the change could be justified primarily on efficiency grounds. It points out: “Some cases are currently pursued where the overall cost of reaching case resolution significantly outweighs the value being disputed in the case itself.”
However, the assessment also notes that, because the highest inducements are likely to be offered by the most efficient firms, restricting competition through a ban on incentives could lead claimants to pursue their case through less-efficient claims-management businesses.
The MoJ also identifies that, while society may benefit from some cases no longer being pursued, some socially-beneficial claims may also no longer proceed.
The consultation, which runs until 10 February, is available online at: www.justice.gov.uk/consultations/consultation-cp1910.htm
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