With all of the publicity around insurance or legal referral fees earlier in the year it won’t surprise many people that the insurance industry is one of the largest spenders on legal services in the UK, about £5Bn pa, 20% of the market.
Unless you’re in the legal services industry though it’s likely that the changes made in the Legal Services Act 2007 which allow non-lawyers to own equity in law firms will have passed you by.
Whilst there have been some pragmatic law firms who have or are beginning to wake up the challenges of the new world, most of the activity has been at the base of the market. The “Tesco Law” end as the press have phrased it. Here consolidation of regional and smaller firms often supported by private equity has been happening over the past few years. The aim of this is to invest in technology and processes that allow for legal services to be commoditised in order to bring the price down and give more certainty to the cost of advice so that it can be firm priced.
It was therefore interesting to see a number of articles in the press today which picked up on Esprito Santo’s annual view of the legal services market. This showed that about half of insurers surveyed said that they were moving away from the traditional panel of legal firms and either increasing self delivery or outsourcing responsibility.
Getting the cost of personal injury claims, and to a lesser extent commercial insurance disputes, under control is a must for the insurance industry. The reputational and business risks of not doing so is obvious, however, the importance of this is not just the effect on insurance premiums. What is more important is the wider impact on the legal services industry. These potential changes could be a tipping point for the legal services market.
Most of the changes to date have been at the base of the legal services pyramid, far removed from the magic circle and other city law forms. This change, when it happens, and it will, will be a number of steps closer to the top of the pyramid and therefore has significant ramifications.
What is certain is that out of this change there will be winners and losers in the legal sector. Those that survive and prosper will be those that can adjust and adapt their skillsets, toolsets, and most importantly their mindsets aligned for a new way of working. A world of efficient professionalism underpinned by greater certainty of price.