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Beware diversifying into claims management - 22 June 2009
BEWARE DIVERSIFYING INTO CLAIMS MANAGEMENT
Kevin Paterson Sales & Marketing Director Assurant Intermediary
22-Jun-2009
It seems that over the past couple of years diversification has been the watchword for brokers. With increasing numbers of them faced with the prospect of a stagnating market they have been forced to diversify or go out of business.
But many brokers are in danger of doing more damage than good by entering feet first into market areas where they have little or no experience because it looks easy to do so.
Diversification is a gentler way of accepting you have to re-engineer your business. I know from experience it can be a hugely traumatic process but brokers should be wary of diving into areas that look too good to be true. Most brokers have a valuable asset built up over many years in their client bank but many have no idea how to use this effectively, especially if they have only ever sold them mortgages. But managing and marketing this database is the key to survival.
Brokers have looked at a range of additional products to fill the armoury as mortgage supply remains stubbornly thin on the ground. These have ranged from complementary products and services such as protection, general insurance, equity release and sale-and-rent-back, with some brokers extending their permissions to enable them to give a broader range of advice on pensions and investments.
Then there are the not so complementary product ranges including debt management, claims referrals, individual voluntary arrangement referrals and utility sales.
I have no issue with any of these as they all have a valid place if managed properly. But some brokers are leaping into areas of business where they have no experience on the promise of a quick win and large commissions.
This can potentially damage their carefully crafted reputation and expose their clients to high costs and poor service.
Debt management and claims management are areas that have seen unprecedented growth in the past 12 months, with the government body charged with regulating this area - the ludicrously named Ministry of Justice - receiving more than 150 applications a month from companies wishing to become authorised to undertake claims management.
There are already around 800 registered and with no formal qualifications needed the regulation is by definition light touch and open to abuse.
Unlike debt management which serves a valuable purpose, the ambulance chasers of claims management have always left a bit of a bad taste in the mouth akin to a form of commercial cannibalism.
We are all familiar with the commercialisation of the claim culture that has arisen in recent years, whether it's no win no fee accident claims or endowment mis-selling.
This is a sign of the times in an increasingly litigious society but the recent route some of these firms have gone down is a new low. Simply because of a technicality these firms are able, in some cases, to get lenders to write off debts racked up on credit cards and loans without a hint of conscience.
The clients are only too willing to accept the services of these firms even though they know what they have done. But through some void of personal responsibility they feel it's perfectly reasonable to pursue this, leaving the rest of us to pick up the tab for their lack of moral accountability.
These people have not been mis-sold or badly advised, they have not suffered any financial loss, they are simply exploiting a loophole for their own benefit, naively believing this is a victimless crime. It's not as we all end up paying through increased charges.
Genuine mis-selling - even though many jumped on this particular bandwagon - is fair enough but the rise of claiming because of a technicality and an attitude of 'because I can' should have been smothered at birth.
Brokers are being attracted to this form of diversification because of the exaggerated claims by many of these companies, not helped by soap stars banging the drum.
In fact the Advertising Standards Authority recently upheld a complaint lodged by Lloyds Banking Group that Debt Free UK had exaggerated the likelihood of success in using its claims management services by claiming that "if your credit card or loan was taken out before 2007 it could be completely unenforceable and will not need to be repaid. Our solicitors can use government legislation to arrange for your balance to be written off and claim compensation for you without affecting your credit rating'"
Ten claims firms are currently being investigated by the Solicitors Regulation Authority for misleading advertisements.
Recent reports in Mortgage Strategy cited a legal source who confirmed that some judges were refusing to deal with many of the claims being submitted in bulk as they were not up to standard, thus frustrating the judges in the process.
The advice is clear - brokers do need to diversify but they should take care with whom they do business and do their homework. If something looks too good to be true it usually is.
BEWARE DIVERSIFYING INTO CLAIMS MANAGEMENT
Kevin Paterson Sales & Marketing Director Assurant Intermediary
22-Jun-2009
It seems that over the past couple of years diversification has been the watchword for brokers. With increasing numbers of them faced with the prospect of a stagnating market they have been forced to diversify or go out of business.
But many brokers are in danger of doing more damage than good by entering feet first into market areas where they have little or no experience because it looks easy to do so.
Diversification is a gentler way of accepting you have to re-engineer your business. I know from experience it can be a hugely traumatic process but brokers should be wary of diving into areas that look too good to be true. Most brokers have a valuable asset built up over many years in their client bank but many have no idea how to use this effectively, especially if they have only ever sold them mortgages. But managing and marketing this database is the key to survival.
Brokers have looked at a range of additional products to fill the armoury as mortgage supply remains stubbornly thin on the ground. These have ranged from complementary products and services such as protection, general insurance, equity release and sale-and-rent-back, with some brokers extending their permissions to enable them to give a broader range of advice on pensions and investments.
Then there are the not so complementary product ranges including debt management, claims referrals, individual voluntary arrangement referrals and utility sales.
I have no issue with any of these as they all have a valid place if managed properly. But some brokers are leaping into areas of business where they have no experience on the promise of a quick win and large commissions.
This can potentially damage their carefully crafted reputation and expose their clients to high costs and poor service.
Debt management and claims management are areas that have seen unprecedented growth in the past 12 months, with the government body charged with regulating this area - the ludicrously named Ministry of Justice - receiving more than 150 applications a month from companies wishing to become authorised to undertake claims management.
There are already around 800 registered and with no formal qualifications needed the regulation is by definition light touch and open to abuse.
Unlike debt management which serves a valuable purpose, the ambulance chasers of claims management have always left a bit of a bad taste in the mouth akin to a form of commercial cannibalism.
We are all familiar with the commercialisation of the claim culture that has arisen in recent years, whether it's no win no fee accident claims or endowment mis-selling.
This is a sign of the times in an increasingly litigious society but the recent route some of these firms have gone down is a new low. Simply because of a technicality these firms are able, in some cases, to get lenders to write off debts racked up on credit cards and loans without a hint of conscience.
The clients are only too willing to accept the services of these firms even though they know what they have done. But through some void of personal responsibility they feel it's perfectly reasonable to pursue this, leaving the rest of us to pick up the tab for their lack of moral accountability.
These people have not been mis-sold or badly advised, they have not suffered any financial loss, they are simply exploiting a loophole for their own benefit, naively believing this is a victimless crime. It's not as we all end up paying through increased charges.
Genuine mis-selling - even though many jumped on this particular bandwagon - is fair enough but the rise of claiming because of a technicality and an attitude of 'because I can' should have been smothered at birth.
Brokers are being attracted to this form of diversification because of the exaggerated claims by many of these companies, not helped by soap stars banging the drum.
In fact the Advertising Standards Authority recently upheld a complaint lodged by Lloyds Banking Group that Debt Free UK had exaggerated the likelihood of success in using its claims management services by claiming that "if your credit card or loan was taken out before 2007 it could be completely unenforceable and will not need to be repaid. Our solicitors can use government legislation to arrange for your balance to be written off and claim compensation for you without affecting your credit rating'"
Ten claims firms are currently being investigated by the Solicitors Regulation Authority for misleading advertisements.
Recent reports in Mortgage Strategy cited a legal source who confirmed that some judges were refusing to deal with many of the claims being submitted in bulk as they were not up to standard, thus frustrating the judges in the process.
The advice is clear - brokers do need to diversify but they should take care with whom they do business and do their homework. If something looks too good to be true it usually is.
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