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The new Compensation Bill expected to be implemented in late 2006, will greatly reduce the no win, no fee personal injury firms that primarily handle accident claims and guarantee no fee to their clients if the case is not won.

The UK government first introduced the legislative proposal in November 2005, was designed to tackle the perceived growth of a 'compensation culture' in England and Wales. The new Compensation Bill proposes a statutory framework for the regulation of claims management services.

The Bill will allow for the Secretary of State for Constitutional Affairs to designate a regulator who will be responsible for ensuring that claims management companies abide by clear rules and a code of practice. A person providing claims management services without the requisite authorisation (or if exempted or subject to a waiver) will be committing an offence and liable to a maximum of up to 2 years imprisonment. Those providing claims management services will be required to give consumers clear advice about the validity of their claim, options for funding the costs and provide complaints mechanism if things go wrong.

UK businesses and local authorities continue to be hampered by the costs of dealing with the UK's compensation culture, and many of the causes of the problem are not being addressed by the Government's new Compensation Bill, according to a survey by Aon, the UK's leading insurance broking and risk Management Company.

Aon's survey found that businesses would like to see greater Government consultation with industry and the public sector. This would go further than the proposed legislation to address what organisations perceive to be the main drivers of the compensation culture; primarily the the increase of "no win- no fee" legal services (84%) and reluctance among insurers to go after claims due to lower costs associated with out of court settlement (42%). The Aon survey also revealed that 86% of those surveyed have been detrimentally affected by compensation culture this year, either directly or through rising insurance costs.

66% of UK businesses and local authorities strongly agree that if the compensation culture is allowed to continue, it will place an unsustainable burden on industry, commerce and public services. 75% of those surveyed claim that it diverts resources and financial investment away from core business and revenue-generating activities.

According to Aon's survey, similar views are shared by Parliament with 2/3rds of Members of Parliament acknowledging the negative impact that the UK compensation culture is having on the performance of business and on the capability of local authorities to deliver a high quality of public services.

Despite the obvious seriousness of the issue, as the publication date for the Compensation Bill nears, businesses show little confidence that the Government can successfully deal with the problem. 92% of the organisations surveyed by Aon doubted that the new Compensation Bill would effectively ease the trouble, and 93% did not think the Government is doing enough in this area.

Another important legislative action, the Legal Services Bill that will be on the law books sometime in 2007 will create higher levels of pressure and competition for the personal injury services community.