Clare Dyer, legal editor
Wednesday March 23, 2005

The companies have been criticised for encouraging spurious compensation claims and for their hard-sell tactics.

Lord Falconer said he had been "disappointed" by the results of an attempt by the industry to introduce self-regulation.

"I believe the time has come to take clear and firm action," he told a conference in London organised by the Health and Safety Executive. "I can announce today that we will legislate on claims managers. We will use the law to regulate their activities."

The industry's Claims Standards Council had been set up last year in a serious attempt at a shake-up, but only a small proportion of companies had joined the body, said Lord Falconer.

"This is disappointing - bad news for consumers and bad news for society," he said.

"Voluntary self-regulation has a role, but obviously we cannot rely on it. Some statutory teeth are needed."

There would be a frontline regulatory body overseen by the new Legal Services Board.

Lord Falconer said the government supported "real claims dealing with genuine problems" but was opposed to "misplaced claims on wrongheaded issues".

He said: "Some companies raise expectations of claims when, in reality, there are none. We hear of people being stopped in the high street and being asked to make a claim, harassed to sign agreements which they may not understand."

Lord Falconer said the government might also need to introduce legal powers to stop some of the advertising which encouraged frivolous claims: "The notion that people can 'have a go' is hindering organisations from going about their normal business."

The promise of regulation was welcomed by the Association of British Insurers and the Association of Personal Injury Lawyers.

Guardian Unlimited © Guardian Newspapers Limited 2005