Opinion: The beauty of regulation is in the eye of the beholder

Do we need more or better regulation? It all depends, says industry consultant Andy Cooper

The second anything goes wrong in any industry, there are media calls for the level of regulation on that sector to be increased or the regulator is encouraged to take stronger action.

One of the challenges many industries face, including travel, is that regulation is applied inconsistently and it is possible and sometimes easy to fall entirely outside the scope of regulation.

Regulation does bring many positive aspects – it encourages those regulated to behave consistently and fairly towards their customers and often forces good practices on industries and businesses where previously behaviours were, to say the least, dodgy.

At the same time, regulated businesses have a double whammy in relation to costs.

They generally have to pay the regulator for the privilege of being regulated and then have additional costs to ensure their businesses comply with the requirements of the regulator.

If a business can escape the clutches of the regulator, it can often get a significant cost advantage against regulated businesses.

It has been this issue more than any other that has polarised debate regarding reform of the Package Travel Directive.

Tour operators, in particular, who are subject to a significant regulatory cost of complying with the requirements of the Directive want its scope widened so that anyone selling a product that looks anything like a holiday are subject to the same regulatory regime they face.

Those likely to be pulled into the scope of protection point to business models which will continue to fall outside the scope and argue that they are competing with the unregulated businesses and should not be compelled to incur additional compliance costs.

At the same time some businesses sit on the outside, keeping their profile as low as possible, hoping that no-one works out how to regulate them.

Do consumers really care whether an industry or business is regulated? It depends partly on the sector.

We all sleep slightly more comfortably at night knowing the aviation industry is subject to a strong regulatory regime, so planes are not going to fall out of the sky.

However, most of the time consumers are happy to choose cheaper options if they are available, whether or not those options are regulated.

How many consumers ever ask, for example, whether the houses they rent through house share websites are properly licensed and whether the owners are paying the correct tax on those houses?

This only tends to become an issue when something goes wrong. At that point, we expect the product we’ve purchased has been regulated and that we have a means of redress against the business.

It is then, if we discover there is no protection, that we start demanding stronger regulation.

I was struck by this dilemma recently when looking at a type of business which, while not directly in our industry, plays an increasingly visible role which affects it and which adds a cost to all travellers.

As a result of changes made by the European Court, air passengers can now make a claim if their flight suffers a delay of more than three hours.

As a result, a substantial industry is developing to “help” or encourage delayed air travellers to make claims.

There is a remarkable level of consistency between the amounts these claims businesses charge, with a typical charge of 25% to 27% of the claim value, often with a handling fee of €25 on top.

The claims businesses seem to fall into three distinct camps:

•       Firms of solicitors, subject to the regulatory regime of the Solicitors Regulation Authority (SRA);
•       Claims management companies based in the UK, which are currently entirely unregulated – there is a
Claims Management Regulator, but it does not address this area of work;
•       Claims management companies based overseas, typically in the Netherlands or Germany, which are neither regulated in the UK nor in their home market.

There is absolutely nothing to prevent any company setting itself up as a claims management company, claiming to be a specialist in flight delay claims and trying to get a slice of what seems a pretty lucrative market.

If every customer who suffered a delay of more than three hours in the UK made a claim, the market size would be around €250 million per annum – which represents about £50 million in fees for the claims management companies.

Clearly not everyone is going to claim, nor will they always use claims management companies, but that is a pretty sizeable sector to be entirely unregulated.

The aviation industry is, understandably, concerned at the cost of addressing flight delay compensation.

While some of the solution is within the sector’s own hands, it seems a sensible measure to bring some sort of order to those who make a living claiming against airlines would be for the airlines to lobby the Claims Management Regulator to include the claims businesses in the scope of regulation.

I’m sure those businesses currently regulated by the SRA would welcome the levelling of the playing field in this regard.

Share article

View Comments

Jacobs Media Group is honoured to be the recipient of the 2020 Queen's Award for Enterprise.

The highest official awards for UK businesses since being established by royal warrant in 1965. Read more.