The legal expenses insurance market is bouncing back after years of uncertainty, disappointment and crippling losses for providers.
Insurers got their fingers burnt in the early 1990s when they first offered comprehensive legal expenses insurance. The upshot was a flood of expensive court actions by people the insurers branded as litigious by nature. Many smaller players collapsed, while most of their larger rivals stopped writing stand-alone LEI business.
Instead, providers went back to offering add-on LEI, mostly to supplement motor policies. Initially designed to cover motorists for uninsured losses such as the cost of car hire while their vehicle was off the road, the policies now cover a widening range of contingencies.
Add-on policies to household insurance have also come on-stream, such as those indemnifying people who let out their property. These enable them to pursue claims against tenants who refuse to leave or who damage the property. Telephone helplines are becoming an integral part of both add-on LEI policies sold to companies or groups such as trade unions.
Also available is after-the-event LEI – insuring people against legal costs where court actions are lost. This was introduced after rule changes allowing solicitors to charge clients on a no win, no fee basis. The changes go some way to meet the Government's wish to make justice more affordable. One firm selling after-the-event LEI is Abbey Legal Protection, whose Accident Line Protect, part of the Law Society's conditional fee scheme, has sold 10,000 policies since its launch in August 1995.
Despite the feel-good factor, figures on the number of households with some form of LEI are scarce. But the Association of British Insurers reckons the market is worth £200 million.
Paul Hurley, business development manager at Law Club, part of Cornhill Insurance, estimates that there are about 70 providers now, compared with about 20 a decade ago. “Legal expenses insurance is coming of age,” he says. That may be an exaggeration, but things look good.
The Government wants to slash the £1.4 billion legal aid budget and wants legal insurance to plug the gap, in the same way as medical insurance is helping to offset the decline in spending on the National Health Service. But there are other reasons for revived confidence in the LEI market.
Jim Collett, legal services director for Legal Protection Group, part of Royal Sun Alliance, says insurers have better relationships with solicitors and vice versa. In the past, insurance groups complained bitterly about the high fees charged by solicitors acting on their behalf.
But Collett says this has changed. “There is a much more reasonable stance from the legal profession today. They know we are able to pass on large blocks of business.”
There is no reason why this relationship should not become sweeter as LEI work increases, offering even bigger dividends for solicitors and specialist providers. Proof that providers are doing well comes from recent financial figures from German-owned legal expenses insurer DAS, which reports that half-year profits have jumped by 40 per cent to £2.5 million, with underwriting profits at £403,000. Ray Hogarth, DAS's sales and marketing director, explains: “It takes time to get a new idea over to the public. In the interim, we have streamlined our claims handling systems so that we can expand the business without increasing costs.”
Many companies are shifting towards offering products that resemble the old stand-alone LEI policies of the early 1990s. But the new contracts tend to be more tightly focused than their predecessors. For example, for about £40 a year, Law Club offers its Motor Law Club Supreme, which offers far more than cover for uninsured loss recovery. Additional benefits include a possible £10,000 pay-out to next-of-kin in the event of death or serious disablement after a motor accident and cover for legal defence costs in the event of prosecution.
The Law Club is not alone in offering more sophisticated packages. But the UK still lags Germany, where three in five households have some form of LEI. Providers agree that there is still public resistance to LEI. But the door is ajar and this should ensure the market continues to grow.