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.
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