All aboard the Gravy Train…

In the 1960s it was said that the British did not complain enough. Perhaps it was because those then in their mid-life had lived through the deprivations of the second world war less than twenty years before, and believed Prime Minister Harold Macmillan’s famous declaration that “most of our people have never had it so good” in July 1957 at a time when the country was riding high on the post-war economic boom. So there was not much to complain about. The youth of the ‘60s were far too preoccupied discovering sex, drugs and rock and roll to spend time complaining.

But times have changed. Over the intervening decades a wide variety of complaint and compensation processes have developed to the extent that there is probably no consumer facing activity that does not have a complaints and compensation system. And quite right too! If we suffer detriment at the hands of a private or public body it is only fair that there is restitution. However, the pendulum has now swung to the farthest opposite extreme. From hardly complaining at all, the British appear to be leading the way in seeking to profit from the complaints and compensation systems, not simply to receive just restitution.

And there are profits to be made, not only by complainants themselves making inflated or entirely false claims, but also for a massive industry that has evolved to help people make claims and to take a substantial cut of the pay-out. No-win-no-fee law firms and claims management companies are cashing in. In 2011 there were 3,213 claims management companies, specialising primarily in personal injury claims, many of which were entirely fictitious. By 2017 the number of firms had fallen to 1,388, due in part to a concerted effort to prevent false injury claims by local Councils in the main. A claims management regulator had to be created in 2007 and has licenced over 6,800 claims management companies since its inception. It has also imposed £2.8 million in fines and cancelled 1,387 licences.

Personal injury remains the largest claims management sector in terms of the number of firms in operation, but the financial claims sector has superseded it for the last four consecutive years, generating more than twice the turnover of the once dominant personal injury sector. Between 2007 and 2017 claims management companies overall earned almost £6.3 billion. Those dealing with financial products and services claims made £3.4 billion of that.

The Solicitors Regulation Authority is demanding that law firms prove how they source holiday sickness claims, which have risen by 500% since 2013, with a large number being fraudulent. No-win-no-fee law firms and claims management companies are firmly behind the increase and some claimants have recently faced jail sentences for fraud as a result as the travel industry fights back. Ironically, action has been taken against some claims management companies themselves because they have failed to return fees due to their clients and have delayed passing on pay-outs that have been made.

Within the last year alone, compensation claims against organisations such as the NHS, and travel companies have risen dramatically. Hospitals, for example, spent £1.7 billion on negligence claims in the year to April 2017 with legal costs accounting for an estimated 36% of the total bill. Lawyers and claims management companies looking to drum up compensation claims against the NHS have now been banned from advertising or working in hospitals.

The Financial Guidance and Claims Bill currently going through Parliament contains provisions which the Government says will reduce the unacceptably high number of whiplash claims and allow car insurers to cut premiums. Insurers have pledged to pass on savings to drivers worth a total of £1 billion. Whiplash claims are 50% higher than a decade ago, despite the UK having some of the safest roads in Europe and a fall in the number of accidents. This has been fuelled by a predatory claims industry, the Government says, that encourages minor, exaggerated and fraudulent claims, driving up the costs of insurance premiums for ordinary motorists.

More than 10,000 benefit cheats were also prosecuted or penalised by the Department for Work and Pensions last year, following an increase in the rate of fraudulent overpayments, from 1.1% in 2015/16 to 1.2% in 2016/17, the highest ever recorded rate.

As each area of inflated and false compensations claims is closed off, so another area tries to open up. Insurer Direct Line examined more than 2,000 drainage claims made last year. It found that 54% of them had been inflated or were invalid. In the first quarter of 2017, it estimates the number increased by 22% compared to 2016, with no apparent or logical explanation. Many people have cover for blocked drains as part of their home insurance, but increasingly a claims management company will arrange to handle the claim for them. Some drainage firms appear to be selling details of their clients to claims firms.

Do you remember the Carlsberg beer advert long ago? A passer-by enters an empty dusty office to answer the ringing telephone. The office has clearly been vacated for a great length of time, and the call transpires to be a wrong number. As he leaves, he brushes the dirt from the office name plate, to reveal Carlsberg Customer Complaints Department. No one ever complained – but that was in the days before claims management companies.

The pendulum needs to swing back a bit. People with justified compensation claims are being delayed because claims staff are overloaded. Their applications have to be scrutinised excessively thoroughly, which is time consuming, necessary because of the large number of bogus claims. And of course, the cost of goods and services rises for decent people because of unjustified pay-outs and the staffing costs of complaints handling.

With turnover from financial claims increasing every year for the last four, and now outstripping the formerly lucrative personal injury claims, it is clear that financial firms are the focus of the majority of compensation claims. And to go by the record in other sectors, the number that are inflated or false is enormous.

In 2013 I gave a presentation to a Financial Capability Forum meeting. Another speaker was a representative from the financial ombudsman service, who stated that 4% of payment protection insurance complaints referred to the ombudsman were made by people who had never had a PPI contract. Around 1.5 million PPI claims have been handled to date by the financial ombudsman service. If 4% of those have been totally false, that amounts to 60,000 individuals jumping on the complaints gravy train for profit, not to mention those who received a pay-out from a firm directly.

Caroline Wayman chief ombudsman & chief executive of the Financial Ombudsman Service is a non-executive director on the Board of the Claims Management Regulator. She must therefore be aware of claims management companies encouraging bogus claims. Yet this awareness does not appear to have crossed over into the handling of financial complaints from claims management companies which have generated for them more than twice the turnover of the once dominant personal injury sector.

Many consumer credit lenders are concerned about the ombudsman accepting complaints made several years after the event, usually submitted by claims management companies. It is very common that when lenders receive such a complaint the expenditure report is very different from that stated at the time of the loan application. There have even been cases where the ombudsman has ordered a pay-out despite the complainant admitting to lying on a loan application form. Often a claim is massaged to give a different financial picture at the time the loan was taken out from the application data given to the lender, in order to suggest that the borrower could not afford the loan at the time. The Ombudsman’s approach appears to be simply to accept the claimant’s assertions without making detailed checks of the discrepancies, allowing some unjustified pay-outs. Interestingly, lenders are not allowed to take an applicant’s word for much information – it all has to be checked and verified. The ombudsman’s approach appears to be entirely the opposite, the complainant’s version of events is accepted at face value, often without significant verification being undertaken.

This cannot be right. Compensation should be paid to those who have suffered detriment. It should not be a profit making enterprise either for the complainant, a claims management company or a no-win-no-fee lawyer. It is time to de-rail the gravy train which is now careering dangerously out of control.

John Lamidey

Arminius Associates