Is government bad for your law firm's health?
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Regulators and the insurance lobby have had a far stronger impact on swaying government than any representative body for solicitors, writes Viv Williams
I recently attended the Legal Services board event at University College London to discuss the LSB's proposal for one regulator for anyone providing legal services.
The super regulator has produced a document that recommends the legal profession, or those providing legal services, needs not nine but one sole regulator. Naturally, the nine regulators do not agree, but the move to activity-based regulation places greater emphases on those areas of law considered to be the most risky. The intention is to lobby government with their proposal.
Comments such as the 'Clementi compromise' were being bandied about, suggesting that there had been some sort of fudge in the production of the Legal Services Act. No one had, apparently, anticipated regulators to compete with one another for business. Really?
So, a more 'risk based' type of regulation most of us would agree should be proportional; we should view City firms differently from barristers and of course the high street. Surely one size cannot fit all?
We only have six reserved activities for solicitors and the remainder of their business is now firmly open to competition, so how would this idea be developed?
There was significant emphasis on the recognition of the individual brands of solicitor and barrister worldwide and this had been a key area in the development of the British legal system for many years, although no law firm could claim 'brand awareness'.
Let's look at an area of law that is certainly considered high risk by the professional indemnity insurers '“ conveyancing. If a practice currently does not have workflow technology and produces approximately 20 per cent of turnover from domestic property transactions they are considered to be a hobbyist and will undoubtedly attract a higher PI premium irrelevant to their claims history.
However, a firm that has invested in technology and produces 80 per cent of its turnover from domestic property transaction is considered a specialist and will command a lower PI premium pro rata. If such a firm were to be regulated by the Council of Licensed Conveyancers then their premium could well be significantly less. This throws various anomalies into the activity based regulation dilemma
However much noise the LSB make about this issue there will be significant debate between all the interested parties, not least the Law Society who are (allegedly) the representative body for solicitors. Yet, I wonder how much attention the government will give this complicated matter considering the other more pressing points such as Brexit and the 'special relationship' with the US's new president elect?
'Whiplash' reform
Perhaps more worryingly is the Ministry of Justice's decision to reduce or scrap damages for soft tissue injury claims. Was it only a few months ago that the Association of Personal Injury Lawyers) thought this had gone away?
This sector is now facing a £1bn loss from the government's reforms of the personal injury market, while insurers are set to benefit by more than £200m, according to estimates.
The MoJ believes, some would say naively, that the insurers will pass approximately 85 per cent of these savings back to the consumers. This would equate to a total of £1.1bn cut from the cost of motor premiums, although consumers would be paying an additional £189m for increased BTE insurance.
The MoJ proposal is based on data indicating that 702,000 road traffic accident cases made in 2014/15 that 523,000 related to a soft tissue injury. Capping damages at £400 for injuries lasting six months will have a devastating impact on the legal profession.
If the small claims limit rises to £5,000 (a figure above this has not been ruled out) then this does not require primary legislation and the outcome of this consultation looks inevitable. It just demonstrates that the insurance lobby has a far stronger impact on swaying the government than any representative body for solicitors, or so it seems.
Many will appreciate that there has been significant activity of the selling of PI firms and books of personal injury, and clinical negligence business in the last 12 months, yet the insurance industry is now challenging each case.
When such a case is novated following a transaction the insurance companies are now claiming that the novation is invalid. This has two significant outcomes; firstly the claimant themselves are not receiving a solution to their case and, secondly, it has a significant impact on the cash flow of the law firms that acquired these books of business. The banks are extremely concerned about the cash flow of such practices and this can only exacerbate the overall situation.