Will claims management companies turn into the marketing departments of law firms?

The latest stage in the unfolding saga of accident claim referral fees, and government plans to ban them, came in the form of an admission by Darren Werth, who is the chairman of the Claims Standards Council [the trade association for claims management companies] that a number of leading claims management companies have struck deals with the solicitors firms to transform into what is referred as an alternative business structure [also known as an ABS] in early 2012.

In an attempt to get round the proposed referral fee ban for accident claims, these claims management companies will, in effect, transform into the marketing and advertising wings of the solicitors practices in question.

However, formation of ABS businesses can’t go ahead, following the introduction of The Legal Services Act, until a licence to authorise the creation of ABS structures is granted to the Solicitors Regulation Authority – which authority has been delayed.

The Government’s Minister of Justice, Jonathan Djanogly, welcomed the plan to merge law firms and claims management companies, and was positive, in particular, about the way in which such mergers would bring claims management companies [which are currently regulated directly by the Ministry of Justice] under the control of the Solicitors Regulation Authority.

Interestingly, Mr. Djanogly seemed to rule out the possibility of making the payment of accident claims referral fees by personal injury solicitors a criminal offence – accepting that, in reality, the criminal law burden of proof would make successful prosecutions for pain or receiving referral fees for injury compensation claims difficult.

However, uncertainty remains – in particular about the possible timescale for such a ban, and on the definition of a referral fee itself.