No respite for Claims Direct

Personal injury compensation specialist, Claims Direct, has issued its second profits warning in three months.

The company says it expects to make a loss of about £20m for the year, after a TV advertising campaign failed to restore the number of cases on its books to former levels.

The company said increased competition and a spate of bad publicity had not helped its cause.

Last Autumn, the BBC's Watchdog programme featured allegations that people winning compensation cases in court were seeing their damages virtually wiped out by Claims Direct's fees.

Difficulties

Claims Direct ran in to difficulties last year after a change in the law surrounding personal injury claims.

Before April, awards for damages set by the courts did not have to take into account the fees or percentage which people then had to pay personal injury groups following the case.

In November, Claims Direct said it would have to pay out £5m to compensate people who had lost out in this way, leading to a 25% slump in its share price.

The company saw the number of new cases on its books nosedive from 5,002 in November, to about 2,500 a month, despite the recent TV campaign.

Claims Direct said it was still experiencing some difficulty in recovering insurance premiums from defendants in successful cases.

It said, however, an agreement with its underwriters meant Claims Direct's clients would now receive protection against any deductions from the first £1,000 of compensation they receive.

Return to profit

However, the one-off cost of securing an agreement with underwriters had contributed to greater than expected losses.

Despite the poor outlook, the insurer said it planned to make its way back to the black through targeted marketing activities.

Claims Direct shares, which peaked last year at 360p soon after their July debut, lost 24% to 11p at 0719 GMT on Monday.

Earlier this year, Claims Direct founder Tony Sullman, who started the firm from his spare bedroom in 1996, stood down as executive chairman following the first profit warning.