Claims management companies (CMCs) are notorious, usually for one of two things: poor customer service, and massive unsolicited marketing campaigns to drum up business – with the latter being one of the most impossibly frustrating things to encounter. But where does the average CMC get your personal details in order to plague you with e-mails, texts, and unsolicited telephone calls?
Meet the referral fee
The lion’s share of CMCs make their best money on handling personal injury compensation cases stemming from road traffic accidents – most notably from whiplash claims. In order to drive business volumes, CMCs need a constantly refreshing source of personal details, and in order to get the best leads, CMCs actually purchase these lists directly from your insurer!
It seems like insanity, but your insurer is contributing directly to the high cost of the average personal injury claims by feeding names to CMCs, despite the fact that the main motivation for these CMCs is to bring high-cost injury claims against the insurance industry as a whole. Passing on these lists of names in exchange for cash, also known as a ‘referral fee,’ results in massive increases to legal costs, which leave the average insurer no choice but to raise their premium prices for customers to recover these legal costs – and with large packets of personal details being sold for just a few hundred pounds, the difference between what insurers make on referral fees and what they lose as a result of legal fees and court costs is nothing short of astronomical.
the times, they are a-changin’
Fortunately for all of those who tire of being constantly plagued by unsolicited contact from CMCs, soon new legislation will go into effect that will limit the role of these companies. From April of 2013, the taking of referral fees will no longer be legal, a move instituted by the Government to attempt to curb the rampant nature of the problem, though there are many misgivings about the practicality of the new regulatory changes.
The possibility exists that insurers or CMCs will find a new name to call referral fees and still pass along reams and reams of names of insurance company customers, due to legal loopholes in the new law. This means that, despite the Government’s best efforts, the onslaught will continue unabated – but there is one other legal reform from April that could make a large difference.
The new legal procedure will be for successful claimants to pay their lawyers’ ‘success fees’ directly from their winnings, instead of having it be the responsibility of the losing party. This will cut down on the amount of compensation insurers pay out overall, which could lead to some relief when it comes to premium pricing.
Lest this new arrangement result in claimants receiving much-reduced compensation awards, caps have been placed on how much in success fees a lawyer will be able to charge his or her own client. In addition, personal injury compensation payments will go up by roughly 10 per cent across the board in order to provide a cushion for clients, while also leaving insurers at a net gain in comparison to their current cash expenditures generated from a losing compensation case.
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