PI Focus | The future for low-value RTA claims

While there is always something in personal injury litigation that is new or changing, the past year has been highly uncertain even by the standards of the past.

The latest changes to RTA claims, which come into force from April 2013, feel like the industry is being turned on its head, with firms on the claimant's side having to rethink their business model entirely - or even having to assess whether there is still a viable business model to be had.

This time it's hard to see quite how business will carry on as normal, unlike the introduction of the MOJ portal, for example, which may have felt like a major upheaval at the time, but is now just part of day-to-day life.

That said, necessity is the mother of invention and the challenge is on to see which firms will find the right formula to carry on providing a much needed legal service efficiently, fairly and economically.

Is there still a market?

While there are some in the industry who believe that the sector for low-value RTA claims will all but disappear, it's hard to make a case for that being the ultimate outcome.

Someone is still going to need to provide claimants with access to a legal remedy and there are plenty of big players that are showing no sign of exiting the market.

The more likely outcome is perhaps the emergence of an increasingly insurer-led PI market. As insurer-backed ABS structures are going to give greater control over which law firm ultimately handles the claim. But, is this really any different to the current situation of insurers steering claimants to one of their panel firms?

Under an ABS people are still free to choose their own representation, in the same way they are now. The opportunity remains for law firms to demonstrate why they are a better choice - for example a firm with a local presence or specialist services (such as translation). There will always be people who shop around for a better deal or service; firms just need to put themselves in the shop window.

What may change is the ability of law firms to compete with the marketing budgets of insurers. The changes to fee structures will certainly heavily reduce the marketing budgets of law firms. Insurers marketing costs are covered within the premium. Once they acquire a new customer and it's more or less a given they will call their insurer after an accident. The actual cost of acquiring the claim is very low.This lower cost per acquisition was one of the major lines of attack in the lobbying from the insurance sector; "legal costs must be too high, look at how much money they spend on acquiring claims."

This is where we should see some interesting developments. It's up to law firms to find ways to get noticed and create strong reputations. Expect to see lots more activity and general noise from the larger firms as they endeavor to tempt people away from the easier option of simply doing what their insurers tell them.

Making a margin

With fixed fees at least offering a sliding scale upwards in terms of the nature of the case and the work required (except maybe for 10-25k MOJ cases), expect to see firms being very targeted in the type of work they will accept to ensure it represents an acceptable margin.

Also, we may see a shift in the use of incentive marketing as an attempt to attract business away from the insurers. While it may be frowned upon in traditional legal circles, is there really anything wrong with offering the claimant a 300 iPad as opposed to paying 700 to an insurer? While there is no question that under an ABS, an insurer will continue to get an income stream, can it be said that firms will still be able to offer 300 incentives such as iPads, and still have the margin they need to make it work?

These margins will determine the future shape of the sector, which firms remain, how claimants are marketed to and who ends up carrying out the work. The market will find its path of least resistance.

Risking quality?It's also logical that firms faced with lower income from cases will seek to offset that by lowering their costs. This means work shifting from experienced solicitors to other types of workers.

Whether this leads to a reduction in quality is a matter for the firms to protect against, but in my experience there is no need for this to be the case.

The majority of portal cases do not need a solicitor with 10 years PQE to be handled effectively. In fact, you could argue that they might actually suffer as a result, with the experienced solicitor naturally being drawn to the meatier and more challenging cases.

With the proper training and systems, an enthusiastic and diligent college graduate might actually be more effective.

It is the reality to which many firms will have to adapt. Firms should be looking to use the skills of experienced solicitors to implement systems and training that enables less knowledgeable staff to maintain the necessary high standards.

That's not to say that we should recreate the claims management company (CMC) model. Solicitors are still the best people to oversee this more cost-effective structure, being on hand at all times to coach and solve problems in order to build up the skills of their teams. You don't have to carry out the process to influence and build the process.

If done effectively, firms can still retain the legal element that sets them apart from CMCs. Each case needs to be treated individually as no two injuries are ever quite the same. Claims forms need to be properly drafted to reflect this fact and to avoid the danger of under-settlement.

Also, although margins are vital to long-term survival, solicitors understand that money cannot totally rule the day. If more work needs to be done - at no extra charge - to achieve the right outcome for a client, then that has to be the priority. This higher duty to justice is in a solicitor's DNA. The same cannot be said for the CMC model of business.

The key to any legal organisation wanting to be successful after April, will be giving people what they want.

Firms that can operate profitably but still provide a good service with regular updates for the claimant, a swift process and a just and proper outcome, will find that the number of grey hairs on the head of the person handling their claim will cease to be of relevance.

Equally, building this positive reputation for whatever your unique selling point may be, is going to be the most effective way to maintain a regular flow of work in the face of the potentially closed-loop of insurance led ABS.

Embrace the change

A period of change will affect everyone. Even those firms engaged in an insurer backed ABS will have to cope with change. We will all need to adapt to lower fees. No one is getting more than anyone else.

As legal practitioners, it's up to us to decide what we want to be, where we want to get our work from and how much we are willing to give to get it.

Change won't just be external, it will also need to happen internally; in staffing levels, training, supervision and structures.

There will be a market place when the dust settles. It's up to each of us to decide whether we remain within it, and what role we choose to have.

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