Claims management companies that provide a poor service could be required to pay compensation, the Ministry of Justice has announced.
From 2013 the Legal Ombudsman will handle claims management complaints from consumers about claims management companies (CMCs).
At present all complaints are dealt with by the the Claims Management Regulator (CMR). The Ombudsman has additional powers, including ordering compensation to be paid.
Chief Legal Ombudsman Adam Sampson said it was "great news for the public and consumers", as the Ombudsman has "significant powers of redress" to protect them.
The MoJ has been responsible for directly regulating the activities of businesses providing claims management services since April 2007.
The Compensation Act defines claims management services as “advice or other services in relation to the making of a claim”. Secondary legislation defines the scope of regulation including the regulated sectors and the regulated activities subject to the authorisation regime.
Any business providing regulated claims management services in England and Wales is, unless exempt, required to be authorised irrespective of their registered address or location of the business.
Since 2007, more than 400 CMCs have been cancelled, suspended or warned by the Claims Management Regulation unit.
Head of Claims Management Kevin Rousell said:
"This reform is a win for consumers and provides yet another tool to help stamp out malpractice in the industry.
"Our Claims Management Regulation Unit will continue to those CMCs who do not comply and we will work in partnership with the Legal Ombudsman to root out those CMCs that take advantage of customers."