Monday 8 April 2013

Insurance giants shake up the legal services market


Insurance companies are making their anticipated moves into the legal services market following the Jackson reforms which came into effect on 1st April, banning the payment of personal injury referral fees. Referral fees became notorious in recent years for having spawned an unwelcome compensation culture in the UK, with personal injury claims relating to motor accidents and whiplash injuries being particularly prevalent.

The RAC has agreed a 5 year commercial deal whereby Quindell Portfolio, the AIM-listed ABS firm, will manage all before-the-event (BTE) legal expenses work generated by RAC’s huge motor book, which accounts for some 7 million customers and approximately 10% of the UK market.  In a highly innovative deal, instead of paying a referral fee for claims as it would have done in the past, Quindell issued warrants for more than 250 million shares to RAC valued at 13p each, the equivalent of a £32.5m shareholding. If the warrants are exercised, they would give the RAC a significant financial interest in Quindell. The deal as structured gives Quindell a significant cash-flow benefit and means it will not need to draw down the £80m funding it raised to support its working capital requirements.  

Quindell will provide a comprehensive service for all RAC customer personal injury claims, including medical reporting, rehabilitation and auto accident repair. The agreement follows a successful pilot of the scheme which is claimed to have reduced claims costs by 20 per cent.
Admiral, the insurance giant, has also decided that a strategic move into the legal services market is warranted, and has chosen to effect this through two separate joint ventures with existing law firms.

The first joint venture, to be known as Admiral Law, is with Bristol law firm Lyons Davidson and will cover Admiral’s main book of business. 

The second, to be known as BDE Law, will be with Cardiff based Cordner Lewis, and will cover 3 subsidiary motor claims businesses owned by Admiral – Bell, Diamond and elephant.co.uk.

The SRA has granted alternative ABS licences for the two ventures, effective 1st May 2013.

It seems that Admiral are not expecting the moves to be a major profit contributor, but believe  they will improve customer service by being able to handle claims in house

Finally, insurance giant Ageas has announced a partnership with personal injury law firm NewLaw Solicitors after completing its ABS conversion, to be called Ageas Law.  The firm will provide legal services for customers making non-fault personal injury claims sustained after a motor accident.

One might speculate which is the bigger driver for these changes – the Legal Services Act or the Jackson reforms – but whatever the answer it is clear that there are huge changes sweeping the personal injury and allied insurance industries.  It seems that smaller independent PI firms are going to have a very tough time in the future, unless they are one of the firms swallowed up by the major insurers.

No comments:

Post a Comment