Insurance has remained robust despite the economic downturn, but the coming year will really test firms’ mettle, says Katy Dowell
There is a clear divide between the top billers in the insurance legal market and those that appear, on the surface, to be falling behind in the sector. This is driven primarily by the distinction in the type of work handed out by insurers’ general counsel.
The top end of the market is occupied by Clyde & Co, Holman Fenwick Willan, Ince & Co and Barlow Lyde & Gilbert. These firms thrive on the multijurisdictional big-ticket instructions that flow steadily out of the players at the top of the commercial insurance markets. The firms operating in this sphere must be truly international and capable of providing a range of specialisms if they are going to win out.
The second-tier insurance firms occupy the volume arena. Irwin Mitchell dominates this space in a defendant capacity, acting primarily for insurers in defence of mass personal injury (PI) claims. From a claimant perspective, Charles Russell, Optima Legal and Russell Jones & Walker are the market leaders.
The volume market is a long-term game. With profit margins squeezed, it is the firms with the capacity to turn around the most cases that will get ahead.
Aside from these two peer groups, there is a third group of firms that is making an attempt to straddle both streams. These firms have proportionally made the biggest inward investments during the past five years. Both Beachcroft and Kennedys have bucked trends with significant increases in turnover while still hiring and broadening their practices to cover both volume work and traditional commercial services.
Clydes recorded a 17.8 per cent turnover rise at the 2008-09 year-end to £185m. It is one of the year’s largest growers in this sector, although it was eclipsed by both Holman and Ince. Ince recorded a turnover rise of 23.5 per cent, from £64.3m to £79.4m, while Holman’s rose by 27.3 per cent, from £77.6m to £98.7m.
London offices continue to dominate turnover, with Clydes’ domestic office accounting for £108m of overall turnover and Ince’s London office for £52.8m. That said, all three have benefited significantly from having international presences.
According to Clydes chief executive Peter Hasson, the Middle East and US practices have been the “cornerstones” of Clydes’ recent success. The former is up 50 per cent year-on-year, while the US, where the firm is one of a few to have offices on both coasts, has recorded a 200 per cent rise in revenue over the past year.
Ince’s results also reflect this trend, with the Asia practice contributing £14.9m to overall turnover and Europe adding £11.7m.
Holman benefited from its South America and Australia offices, where insurance work has been dominated by disputes related to natural resources. Head of insurance Paul Wordley said Holman pools all profits, which are then shared equally across the firm.
“It’s the only way to go,” he stresses. “It means we’re all working together.”
Falling behind is Barlow Lyde & Gilbert (BLG). The firm still picks up big-ticket instructions and acts for insurers affected by the fallout of the Madoff scandal, but it continues to suffer from defections.
The gap between BLG and Clydes grew by £22.8m in the past year. Kennedys, which is often seen as the poor relation of BLG, closed the gap between the two by £10.2m. If this trend continues until the 2009-10 year-end, it is likely that Kennedys’ turnover will be at least on a par with BLG’s.
However, BLG should benefit in the coming year from an anticipated upswing in professional indemnity claims, but for now the firm is occupying a precarious middle ground, always with the danger of more defections.
In revenue terms, Beachcroft outshines Kennedys with a turnover of £121m against the latter’s £67.3m, largely due to the fact that the former is bolstered by strong health, employment and public service practices.
In terms of revenue per lawyer (RPL), the firms are aligned more closely, with Beachcroft marginally ahead at £192,000 compared with Kennedys’ £187,000.
Both firms have worked hard to broaden their foundations in recent years. This is a direct result of shifting demands from general counsel, who are becoming increasingly more likely to give out big-ticket instructions to those firms that offer good terms on volume work.
Kennedys moved into the volume market last year after acquiring personal injury firm Davies Lavery and further bolstered its professional indemnity capability by acquiring Reynolds Porter Chamberlain’s Tiverton office.
Beachcroft expanded its international presence by forming best friend relationships across Europe, setting up a joint venture with Indian firm Khaitan Jayakar Sud & Vohra and opening an office in Dublin. The firm has spent much of the current financial year investing in its volume business ‘B2 from Beachcroft’, which it launched on the back of the acquisition of PI firm Kingslegal.
A new legal hierarchy is emerging in the insurance market and partners are more willing to change firms as demand for their services escalates. The market bucked downward trends during the 2008-09 financial year, but it will be the current year that defines the sector. As the volume players struggle to keep hold of their market shares, the leading firms have positioned themselves to continue widening their loads.