Recognising the benefit of ABS

"Don't blame the tools"

The PI sector could be unrecognisable in less than three years, but don't blame ABS; they will be part of the solution, not the cause of the problem.

Not so long ago it looked as if the ABS debate could turn into a sketch from Monty Python's Flying Circus with the declared early runners looking like entrants for the 100 yards dash for people with no sense of direction. Pundits, who declared that there would be few movers, certainly look to have got it wrong.

More recently there have been dire warnings that external investment will lead to law firms obsessed by profits. The capacity of some solicitors for self-delusion, as they emerge from one of the longest periods of sustained growth in the UK, having failed to invest in their own balance sheets, is depressing.

In the past the personal injury business tended to be counter-cyclical as revenues tended to increase while costs tended to drop during a recession. This time around the story is different. Insurers have been steadily capturing the lion's share of claims and 'selling' them 'through a glass darkly' to ever decreasing numbers of panel firms that are little more than outsource units. Claims management companies are looking to take work in-house in anticipation of a ban on referral fees. The Jackson reforms are waiting in the background as the government tries to undo the complex funding mechanisms that have grown up around the dysfunctional legal sector that resulted from the so-called access to justice reforms first introduced the last time they were in power.

Words such as 'health' and 'safety' have been branded by the tabloid press, and, by Steve Hilton of the Conservative Party, as anti-social. Worst of all for those of us who chose a branch of the profession where we thought we could do some good for clients are now routinely referred to as 'ambulance chasing so and sos'.

It's time to claim back the moral high ground and establish well-organised, well-funded transparent law firms that are capable of representing genuine victims of personal injury in an independent and cost-effective way.

ABS is not an end in itself, it is one of the ways that capital can transform legal business so that it can call on resources in the same way as any other service sector. Clients will decide who deserves to stay in business based on the service they receive and the outcomes achieved. It's time to wake up and realise that the PI profession is not in a good place, not in a respected place, and, if we stay the same as the world changes, not even a profitable place. The future may be challenging but there is an urgent need to escape the past.

ABS is one of the tools available to us and bickering about tools, as the saying goes, is a sign of a bad workman.

Neil Kinsella is chief executive of Russell Jones and Walker

"If the government achieves its ambition to reduce costs then margins will fall across the chain"

Ever since David Clementi was asked to conduct a review of the legal services market, commentators have identified the personal injury sector as one ripe for ABS conversion. They argued that the nature of the work, with bulk contracts from a handful of relationships, made it attractive to external investors.

Even if that was right five years ago, the political landscape has moved on considerably to a point now where personal injury litigation is in a downward spiral. There is real political momentum to drive out unnecessary costs from the claims process, with the proposed abolition of referral fees just one way of achieving that. However, the government knows it is working against a sector renowned for its 'innovation'.

With a not insignificant number of suppliers servicing a claim including vehicle damage repairers, credit hire, rehabilitation specialists, providers of medico-legal reports and, of course, lawyers, each looking to add on their margin it is not surprising that the total cost of claim has risen year on year.

The roll-out of an electronic portal for notification of motor, EL and PL claims will help streamline the process, but it is essential that the government uses the experience to improve the next roll-out. With claims up to £25,000 being submitted in a similar format there must be an opportunity to build an electronic response to the electronic notification. In other words, an agreed valuation tool for general damages would take a great deal of argument (and thus cost) out of the system. It would be a wasted opportunity not to devise such a tool.

Against that background, ABSs will see new entrants moving into an already crowded space. Not necessarily the Tescos of this world, although organisations with good solid customer bases may well look to cross-sell legal services, but rather organisations that already service part of the claims chain.

If the government achieves its ambition to reduce costs then margins will fall across the chain. An organisation that can fulfil a number of the supplier services will almost certainly be happy to take a smaller margin in each area provided they achieve an acceptable overall margin.

The biggest single impact of ABS in the personal injury sector will be the demise of the large single-product claimant law firm and the dilution of the supply of pure legal services.

By contrast there will be concomitant growth of multi-faceted businesses taking small slices of profit all along the claims process '“ a sort of personal injury hedge fund manager.

A valid claim from an injured claimant deserves proper consideration. It is for the regulators of ABSs to satisfy themselves that service providers are ultimately going to act in the best interest of their client.

Let's hope that delivery of both claimant and defendant legal services within an ABS structure remains a reserved activity for regulatory purposes.

Tim Oliver is CEO of Parabis Group