Financial Conduct Authority chief executive designate Martin Wheatley says claims management companies are a “cancer on the industry”.
Speaking at an Association of British Insurers conference on conduct regulation in London last week, Wheatley said the FSA’s failure to levy proportionate fines for the misselling of payment protection insurance and banks’ aggressive approach to PPI sales have led to the growth of the claims management sector.
He said PPI accounted for more than 30 per cent of some banks’ total retail profits.
Wheatley said: “Where we failed is we did not realise the proportionality of the fines we were implementing against the profitability of the product. We did not look through to the business model of the firm. One or two directors have said subsequently to me and those at the FSA at the time, the FSA should have known firms would not respond to £100,000 fines, as they were making billions from this market. It was a huge revenue driver.”
He said firms and consumers are now paying the price of PPI misselling.
Wheatley said: “The industry is now unpicking that at huge cost, a cost of billions to the industry and a cost to all of us who are bombarded every day with claims management companies saying ‘you too may have been missold’.
“We have created this problem for the industry, that because it was not dealt with earlier, because the industry did not respond to our signals, it has become a huge problem. We have created this new cancer on the industry which is the claims management companies who are driving lots of claims which are not necessarily valid.”
Plan Money director Peter Chadborn says: “These firms have been allowed to run riot, so I would agree with Martin Wheatley’s choice of words.”