RISK OF CONFLICT OF INTEREST INHERENT IN LEGAL EXPENSES INSURERS DRIVE FOR…

…ALTERNATIVE BUSINESS STRUCTURES SAYS ARC LEGAL

The move by some legal expenses firms to develop Alternative Business Structures (ABS) under the Legal Services Act creates the risk of a conflict between the needs of underwriters and consumers according to Arc Legal Assistance (Arc Legal).

The Solicitors Regulation Authority has announced it will start accepting licensing applications for ABS from 3rd January 2012. With a number of legal expenses insurers considering developing such structures, those adopting an in-house legal services model, where lawyers are directly employed by the company, risk creating a commercial conflict of interest exposing companies to allegations from consumers that its legal decisions lack impartiality.

Richard Finan, Director of Arc Legal said: “The concept of a legal expenses insurer’s own-in-house lawyers undertaking legal case assessments has an inherent risk of conflict with the perception that the underwriters’ exposure rather than client interests at the heart of decision making.

“Using in-house lawyers to make initial decisions on prospects of success and the merits of cases raises very valid issues on independence that need to be addressed. Those legal expenses insurers using this model must clearly demonstrate a level of independence in the decision making process to ensure consumers are protected from the commercial pressures such a structure would create.”

Arc Legal shares the concerns expressed by Consumer Focus in its report on before the event legal expense, entitled ‘In Case of Emergency’, about independence and the appropriateness of an insurer’s in-house solicitors making initial assessments and, is calling for transparency in the ABS relationship between the legal expenses insurer and law firm to give consumers confidence that there is integrity in the system and, in the legal expenses product itself.