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One fifth of northwest personal injury firms consider closing

A quarter tell survey profitability will drop by 50 per cent after fee cuts and reforms

18 March 2013

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Nearly a fifth of specialist personal injury law firms in the northwest of England are considering closing down, according to a survey of managing partners.

It found that cuts in fees and the Jackson reforms, which come into force on 1 April, will cause many law firms to go out of business.

Over 300 managing partners of northwest law firms were surveyed by specialist law firm O’Connors last week.

Faced with the prospect of a major downturn in case volumes and profitability, 19 per cent said their firms were considering ceasing to trade altogether and effectively going into run-off.

Over a quarter of respondents said profitability will drop by 50 per cent, while one in ten said it will drop by as much as 80 per cent.

Around two thirds of respondents said they currently paid referral fees and intend to continue doing business with referrers after the reforms come into force. Many are in discussions as to how best to structure these relationships.

According to the survey, 71 per cent of managing partners are actively trying to restructure referral arrangements so that cases are self-referred by potential claimants on the recommendation of the referrer, in the hope that this will avoid the ban.

Just over half are planning to increase their own direct marketing spend to attract new clients, rather than buying them in. According to earlier research, the net cost is about the same.

The pressure on the sector has been compounded by the reduction in road traffic accident (RTA) portal fixed fee rates and a planned extension to the portal being introduced by the government in the next few months.

Ninety-one per cent of the firms surveyed handle portal work and virtually all of them believe that the planned changes will reduce the profitability of their personal injury divisions.

Respondents noted that the impact of the proposed changes to extend the RTA portal to include employers’ liability and public liability cases will have a broadly similar impact on the profitability of this type of work, though others felt it would have no impact.

The anticipated fall in firm profitability is impacting managing partners’ plans for seeking non-lawyer ownership. Nearly a quarter said they no longer intend to bring referrers into their proposed alternative business structures.

None of the respondents said they would ask their bank manager for advice on regulatory issues and on structuring their firms and relationships with third parties. Just under a quarter said they would likely approach the Solicitors Regulation Authority. Forty-three per cent said they would most likely approach a consultant for help and 48 per cent said they would likely approach a specialist law firm for advice.

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