Axa Insurance and Norwich Union are secretly planning to axe their external law firms if they cannot compete with in-house teams on price.
Both insurers, which have employed the services of ex-Weightmans chief executive Martin Read to audit their law firms, have been holding talks to set up in-house departments in the next two years to handle claims work internally.
Axa and Norwich Union are both expected to choose new panels by next year after the auditing process has been completed.
But it is understood that both are concerned that sending out their claims litigation work is not cost effective.
One source says that Read has been retained to audit the firms which in Axa's case include Beachcroft Wansbroughs and Cartwrights, but he has also been charged with setting up an in-house department for handling the work.
Read refuses to comment on his in-house brief. But he says: "Insurers are intending to take it in-house if a sufficient number of firms are not able to provide a service at a commercial price."
But one insurance lawyer says: "They have got to see that it is not just the cost of handling the claims but it is also the amount the claim is.
"If you have got solicitors competing with each other you keep the costs down."
Another source says: "Why there might be difficulties now is probably because of Woolf and partly because help from information technology means companies don't need the use of lawyers."
However he says: "But the problem with going in-house is that you can't get quality lawyers."
Graham Plum, claims technical manager at Axa, says: "We have talked about a number of different options. At present it is certainly not our intention to do work in-house. If we do it in the future it will depend on what happens in the future."
Norwich Union, which outsources work to Davies Arnold Cooper, Lawrence Graham and Keogh Ritson, was unavailable for comment.