Navigating the increasingly uncertain environment for personal injury claims firms: Part 1
17 February 2016
Significant shifts in market forces – from unprecedented competition to an increasingly uncertain regulatory climate – mean it’s time for legal services firms in the personal injury (PI) claims space to re-evaluate their current position and future strategy.
A level of consolidation may be imminent but, for the moment, it’s a hugely competitive sector. Alternative business structures, private equity funding and new law firm combinations mean the marketplace is more crowded than ever. Some 3,500 firms are now competing for the same population of claims and that’s hitting margins, severely in some instances.
Meanwhile, a surge in certain claims classes is ratcheting up operational pressures for insurers meaning certain cases are taking longer to resolve. That’s bad news for ‘no win, no fee’ firms with capital tied up in cases that may or may not settle at cost. Their working capital lock-up periods were already way above the average for UK law firms. Firms should focus on initiatives which start to accelerate settlements before they extend even further.
On top of all this, a growing wave of legislative and regulatory developments looks set to break on PI claims firms. These include government plans to crack down on the fraud and claims culture in motor insurance, the prospect of fixed fees in clinical negligence and the recent review of noise-induced hearing loss claims as well as the Solicitors’ Regulatory Authority research into the competence of PI solicitors. This means there will be massive change ahead.
The worrying thing is that so many of these developments have come from leftfield and are yet to be finalised. George Osborne’s announcement on motor claims came without warning and there’s still no clarity on when any change will become effective. It’s the same with the mooted new thresholds for clinical negligence claims. What value of claims will be subjected to fixed fees? And when? Nobody knows all the transitional details.
Alongside all the individual reform initiatives, Lord Justice Jackson recently advocated a different approach that, if it gains traction, will affect all civil claims. In a speech he gave in late January, he argued that the civil justice system has become 'exorbitantly expensive' and pushed for a more extensive regime of fixed costs for civil claims worth up to £250,000.
It’s difficult for law firms to make strategic decisions in such a volatile and uncertain environment. In fact, with so little solid information to rely on, it’s not uncommon to find them doing little or nothing to prepare for or control the impact of these developments on their business. That applies both to niche firms that rely on claims in particular areas, and to large claims firms operating across the wider PI sector. This inertia may be understandable, but it’s also potentially dangerous.
In the follow-up to this blog, I’ll suggest steps firms can take to secure their position – whatever lies ahead.
 The working capital lock-up results from the 2015 PwC Annual Law Firm Survey showed the Top 51-100 firms had an average lock-up of 152 days. This period extends significantly for firms in the personal injury sector - up to an average of 489 days for plaintiff firms in the Clinical Negligence space and 526 days for plaintiff firms in the Personal Injury space.