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The Arc Legal team regularly provides media comment on relevant issues. Below is an article published in the insurance trade publication, Insurance Times, on the legal expenses industry response to the Legal Services Bill.
The delivery of legal services in the UK has seen significant evolution in recent years and there is more to come. However, Richard Finan asks whether the market is ready to respond to the real opportunities the new legal landscape has to offer.
While it might not be the stuff of science fiction or a likely candidate to prompt the return of TV’s Tomorrow’s World, the introduction of the Legal Services Bill will bring fundamental changes to the way the general public accesses legal assistance.
With such dramatic change on the horizon it is no surprise to see that retail brands, including insurers and brokers, have started to focus on the opportunities it will bring.
But, how pioneering are some in the legal expenses market going to be?
Many appear to remain wedded to a business model still based on a conflict of interest with those that deliver the legal services. This model is inefficient, costly to run and ultimately impacts on the delivery and service provided to consumers. Are some traditional providers no longer real revolutionaries in a brave new world?
Broadening access to legal services is part of the government’s proposals to reform the legal sector. The Legal Services Bill, which, has already received Royal Assent and is now progressing to statute, is designed to put the consumers’ interest at the heart of the process, by creating competition with solicitors and non-solicitor firms able to offer legal services.
Within the Bill is the provision to allow these two groups to work together to deliver legal and other services, known as Alternative Business Structures (ABS).
At this point, before the Bill is implemented, non-solicitor organisations can only provide limited, regulated legal services.
ABS, however, will enable businesses to take a financial interest in a firm of solicitors, thus broadening out their product range.
It is a commonly held belief that some already have ‘hidden interests’, or perhaps not so hidden, in solicitor practices. This is an interesting development and clearly there has been some creative thinking around how this can be achieved prior to the Bill being implemented.
From the late 1970s, early 1980s, the UK legal expenses market has used an established operating model. The basis of the model has been a control over all aspects of the claims process. But this control has come at a price.
The traditional legal expenses model is based around an inherent conflict between insurers – looking to minimise claims costs – and solicitors seeing the cover as a means through which they can maximise their income from a case.
To manage this, the traditional providers have established substantial infrastructures using large in-house solicitor teams as a gateway for claims and cost controls. The operating and administration costs of such cumbersome structures are high and there are duplicated processes which cause delays in the delivery of services to the end customer.
In direct response to this my own firm developed and launched an alternative that starts with the delivery of legal advice by partner law firms rather than in-house solicitors.
These firms are experienced in running legal expense claims and take on a much larger proportion of the claims process than they would do with traditional providers.
Operating under pre-defined and specifically agreed parameters to provide the assessment of claims’ prospects through to case handling itself, removes the burden of duplicated claims management.
As mentioned earlier, we have already seen some in the insurance sector responding to the Bill through active participation with solicitors. So how is the traditional legal expenses model likely to fair in a broadened market?
The ability to offer a wider product and service range will be an important factor. High street and other retail brands will be looking to partner with organisations that can provide not just legal expenses insurance but true legal services.
But perhaps the biggest challenge comes in how the necessary infrastructure to deliver the wider services will be created.
The start-up costs of building a high volume quality legal practice from scratch are prohibitive, as would be the acquisition of an existing law firm. The structure of the traditional legal expense provider has some of the legal skills required but would need heavy investment to increase the pool of expertise.
Conflict of interest is likely to remain, and in fact intensify, as a real issue for traditional providers. A business that is insurer and solicitor is going to face some difficult challenges to ensure that the best interests of the policyholder and underwriter are served.
From the profitability standpoint, not only will there be infrastructure costs but also those of dual regulation and, if figures don’t add up, the likelihood of these costs being passed to the end customer in increased premiums or to the broker in reduced commissions is high.
For a number of years now the legal expense sector has offered the insurance market a strong basic proposition covering three specific areas namely, household, commercial and motor. While products have evolved over time this has been more tweaking than radical overhaul.
The Legal Services Bill provides the sector with the opportunity to the fill the legal assistance gap in their current offering which, by today’s standards, might be considered limited.
The Bill provides the foundation for some joined up thinking across the legal expenses and legal services sectors. It will offer scope for some real innovation in the development of insured and uninsured products and service.
Arc itself is already involved in conversations with high street brand distributors and affinities about prepaid, non-insured services.
Some in the legal expenses sector would do well to look at how supermarkets, banks and other retail brands are responding to the Bill. It is also worth them seeing how brokers and even solicitors, are waking up to the opportunities the Legal Services Bill will bring.
While some brokers, particularly those in the high volume motor sector, are exploring acquisition and new practice development strategies, some have focused on the benefits of joint ventures with solicitors and firms, such as Arc, to access legal services without the expensive price tag of an outright purchase or new start-up.
A further interesting development will come as law firms consider external investment to support their own growth.
The greater emphasis on commercial success that comes with such support will increase the appetite for a greater share of the legal services market and perhaps even the development of the high street solicitor brand.
The legal expenses insurance community must move on from its traditional base and develop with the changes in the delivery of all legal services, rather than resist them.
Richard Finan is a Director of Arc Legal Assistance
This article can also be found at www.insurancetimes.co.uk