Speedboat or oil tanker: can your personal injury department survive?
With personal injury reforms unstoppably extending across the whole sector, options are getting thinner for law firms, suggests Jonathan Wheeler
Another financial year has ended with the realisation that we have got it all to do again.
Running a legal practice is relentless. As I sit down to pen next year’s business plan, it’s a good time to take stock and look ahead to the challenges facing the personal injury market next year.
Let’s start with the Civil Liability Act, which will introduce a tariff scheme for low-value road traffic accidents by April 2020.
This will undoubtedly mean that the way lawyers have always done things will have to change: Greater deductions from damages, unbundled services, a greater use of technology and the use of less skilled (cheaper) advisers are all on the cards.
At the higher end, the Lord Chancellor is to make a decision on the discount rate by 6 August 2019.
Most industry pundits believe that the rate is likely to be increased to somewhere between 0 – 1 per cent.
The costs of ongoing financial advice will need to feature in schedules, but if this comes to pass seriously injured claimants will see a reduction in the money available for long term needs such as care, treatment and equipment costs.
Professors Paul Fenn and Neil Rickman conducted a study for the government on the impact of LASPO II and their findings are alarming: Damages recovered in clinical negligence claims under £250,000 have reduced by 22 per cent and in personal injury claims under £25,000 by 17 per cent.
This is before success fees were deducted. What is going on here? Well, for the personal injury cases I suggest that within a more restrictive costs regime, solicitors cannot afford to take the additional steps needed to justify and fight for better compensation for their clients – ‘good enough’ is good enough.
In the clinical negligence sphere, it is more likely that less experienced practitioners are entering the market without the expertise to argue for higher damages.
While these are worrying developments, the government rather glosses over them when declaring its reform a success in reducing costs and speeding up settlements.
Attack on costs
The government has launched a consultation on introducing the latest of the Jackson reforms, with the clear intention that these will be implemented – one wonders, what is the point in replying to the consultation?
For any lawyers operating within the lower value litigation market outside personal injury, this will undoubtedly see costs slashed, and again the viability of law firms to represent clients in the way they have done up to now will be brought into question.
The fast track will be extended to capture intermediate claims up to £100,000, and law firms will need to start modelling the costs matrices to find out if they will be able to continue to offer a full service to clients with such claims, or change the way they deliver their services.
The consultation closes on 6 June, and as it only requires rule change, rather than primary legislation, practitioners could see these coming in fairly swiftly.
Who knows in what form this will take – if at all – but we must all prepare for leaving the European Union on some level.
Most personal injury law firms are focused on the domestic market, and I suggest there will be little change to our day-to-day work.
However, enforcement of judgments in other European states will be much trickier, and there will be more jurisdictional issues to cope with for accidents abroad.
European regulations not explicitly retained in our domestic law will not apply. This could mean that health and safety legislation and the operation of the motor insurance directives will need to be looked at carefully.
Pinning our hopes on a general election to alter the government’s current course is in my view misplaced.
A change in government is unlikely to stop the force of all this change. It is after all in government’s interest to reduce legal costs and damages in areas where ‘the state’ is by far the largest single defendant to such claims. Is this an abuse of power by the executive? Most probably, but let’s move on.
Coping with change
The adage ‘get big, get niche or get out’ has never been more apposite. We have seen many players leave the field, often catastrophically – Seth Lovis & Co ceased trading in March and Nesbit Law Group LLP crashed out with high debts in July last year.
This will make banks twitchy, and will lead to a reluctance to extend credit lines to the firms remaining in the market.
Borrowing vast sums of money to prop up a failing law firm has never made good business sense, and it also prevents firms staying nimble enough to cope with change.
Change breeds innovation of course. Representing the interests of the vast majority of accident victims at the lower-value end of the market will require larger economies of scale, slicker use of technology, reliance on lesser-skilled and cheaper staff, or the unbundling of services.
There is no doubt that there will be a continued need for law firms to represent accident victims; accidents will continue to occur and people need compensation to cope with the changes their injuries have made to their lives.
I personally take my hat off to any law firm which can continue to thrive by representing such clients, who would otherwise be marginalised and forced to fend for themselves in a system heavily weighted against them.
It is very difficult to unbundle litigation services for personal injury claimants. Our clients are often unsophisticated members of the public, generally unused to legal concepts of proof and evidence, and traumatised by the very events they are litigating. To get them to keep a pain diary, or provide receipts for their expenditure can often be a challenge.
Technology may help and some firms have developed client apps to help them with this sort of thing. But clients still need steering through the process, particularly where – certainly if insured – the defendant will undoubtedly have professional representation to protect its interests.
Without the economies of scale of some larger law firms, to stay in the market others need to ‘get niche’, and that is certainly the path we have chosen at Bolt Burdon Kemp. So far, we have stayed at least one step ahead of the reforms.
Some time ago we re-focused our business on the most seriously injured. For the last year we have only taken on claims valued at in excess of £50,000. This allows us to provide the full service to our clients that we want to provide without cutting corners for the sake of proportionality.
We have also focused on areas that are unlikely to be hit by costs reform – such as child abuse cases and higher value clinical negligence claims, both of which are seemingly outside the scope of the latest Jackson reforms.
Reasons to be cheerful
The amount of cash needed to finance a personal injury department or firm is eye watering.
The capital cost of investing in great staff to service the clients, targeted marketing to get the clients, funding all your clients’ disbursements and not getting paid until the end of the case – and only if you win – means that there are immense barriers to entry for serious players starting from scratch. For those that have managed to stay in the market, this is good news.
And major ‘bet the company’ reform – such as no fault compensation – is not likely any time soon, as even Lord Sumption has recognised.
The trick is to identify the sort of lawyer you want to be. From there you can identify who you want your clients to be, target that market, grow your reputation and financially gear your firm so you can be nimble to change – more speed boat than oil tanker. I touch wood that we have got it right again for the next financial year.
Jonathan Wheeler is managing partner at Bolt Burdon Kemp boltburdonkemp.co.uk