Analysis on Parabis: Opening Gambit
3 July 2011 | Updated: 4 July 2011 8:25 am | By Katy Dowell
6 February 2012
17 May 2012
22 August 2012
15 August 2011
13 February 2012
It’s bigger than BLG, it’s bigger than Kennedys and it’s grown from zero to £100m in a decade - how Parabis Law is remodelling the legal insurance sector
The profession is expected to shrink dramatically over the next decade as the market embarks on a revolution sparked by the Legal Services Act (LSA). Nowhere is this more evident than in the legal insurance sector, an environment that is perfectly suited to consumers of commoditised legal services.
In this world sits 11-year-old Parabis Law, a firm that hopes to lead consolidation of the commoditised insurance sector and change the way insurers use their lawyers.
Until now Parabis has kept quiet about its successes. Launched in 2000 by former Berrymans Lace Mawer (BLM) partner Tim Oliver as defendant insurance firm Plexus Law, it has built up a strong following, but has remained under the radar. But with the spotlight on insurance firms following the Clyde & Co-Barlow Lyde & Gilbert (BLG) and Davies Arnold Cooper (DAC)-Beachcroft merger talks, there is a rush to consolidation.
And Parabis - up until now one of the lowest-profile firms in the sector - has emerged as a major player. In the next few months it will convert into a legal disciplinary practice (LDP) and the market will see for the first time the impact having non-lawyer partners can have on commercial legal services.
Combined with its sister claimant insurance firm Cogent Law, Plexus is registered as Parabis Law LLP with the Solicitors Regulation Authority.
At the 2010-11 year-end Parabis will make a splash in The Lawyer UK 200 with a revenue of £100m, representing a 17.6 per cent hike from £85m a year earlier.
Oliver says the Plexus operation contributes the largest share of revenue, if only because rates are higher on the defendant side.
To give some context, that revenue figure is larger than those of BLG, which posted a turnover of £94.5m, and Kennedys, whose turnover figure stands at £97.4m.
Parabis’s strength lies in its string of blue-chip insurance clients. As well as QBE European Operations, the list includes the RBS insurance group, which owns Direct Line, RSA and Chartis, a subsidiary of AIG.
Earlier this year Plexus usurped Kennedys as the provider of personal injury claims work to Tesco, which Kennedys had inherited as part of its acquisition of Halliwells’ Sheffield office last year.
In the past year Parabis has handled more than 150,000 claims of varying values, from run- of-the-mill road traffic accident claims to multimillion-pound disputes.
With 95 partners and 1,200 staff Parabis now has expertise operating in the employers’ and public liability sectors, professional indemnity (PI) markets and traditional dispute resolution.
“It’s not bad for a firm that launched only 10 years ago and is focused on the volume markets, where margins tend to be weak,” states one market commentator.
Oliver agrees that volume work has “never been the glitzy end of the profession”, but says he was determined to make it profitable
by offering a range of services to clients.
Upping the volume
Oliver split away from BLM to join Badhams Thompson in 2000 along with a team of 50. It was this move that laid the foundation for the launch of Plexus.
“We had a meeting on 14 July 2000 where we sat down and discussed where the sector was going,” relates Oliver. “We realised there’d be consolidation of the market, there would be bigger and fewer panel places and consequently fewer firms servicing the larger insurers.
“Against that background there’d be a continued pressure on fees, and we needed to know we could act once the whole profession was opened up.”
Around the same time the insurance sector came under immense pressure to sort out how it handled mass claims without spiralling costs to the consumer.
It was an issue that raised its head again last week after the former justice secretary Jack Straw said insurers that sell details of clients
to personal injury lawyers were effectively operating a racket.
However, while in government Straw failed to ban referral fees despite immense pressure on him to do so. Instead his government sought to bring about a fast-track personal injury system for road traffic accidents valued at less than £10,000.
This was the market Oliver anticipated would grow and one that a new firm with a variety of skill sets outside the law could benefit from.
“What they needed were slick and speedy processes that were clear and safe,” contends Oliver.
Anticipating the changes, the firm decided to target both ends of the commoditised market, offering risk management services on one level and claims handling on the other.
“In an environment where insurers are losing money on road traffic claims, there must be a way of managing the costs,” says Oliver. “And we see that as being through risk management.”
Ins and adds
The firm has a haphazard history of acquisitions and bolt-ons both in and out of the law. It began in 2000, when Oliver created Rymills Law to handle claimant road traffic accident claims.
A year later Oliver set up the defendant equivalent of Rymills, Plexus, which was established through the acquisition of Williams Davies Meltzer. Around the same time claimant firm Cogent was launched, absorbing the claimant work belonging to Rymills.
When the operating partnership of Parabis was set up in 2002, it effectively became a parent group overarching several legal and non-legal brands. This allowed the lawyers to concentrate on the day job while the parent group scouted the market for acquisition targets.
Initially its focus was outside the law and Parabis took in two rehabilitation providers, Human Focus Return to Work and RTW Plus.
But in 2007, following the introduction of the Legal Services Bill, Parabis switched its attention back to the law - first absorbing Colchester-based Gaston Whybrew Law (GW Law) before expanding into the North through the takeover of the defendant arm of Cheshire firm Bott & Co.
With such a mishmash of acquisitions and a variety of brands the decision was taken in 2009 to streamline. Parabis Law became the parent group of defendant firm Plexus and claimant firm Cogent, while Parabis Ltd became an outsourced claims management group and consultancy and Argent was established as the parent of the group’s professional services firms, which include loss adjustors.
“We had a vision, a plan, and that vision was to create a business that had the ability to service the most important aspects of the claims-handling process for insurers - a one-stop shop,” Oliver recalls. “It was unusual because back then nobody was thinking about any big changes in the law and we took steps to protect our business model by expanding into other areas outside the law.”
The strategy was and remains simple: target firms with turnovers of up to £5m that already have relationships with Parabis Law subsidiaries and take them out of the competition.
It was a tactic that worked well for Plexus when it came to pitch for work for international insurer QBE.
In January the firm expanded significantly its client portfolio for QBE while at the same time taking over competitor Everatt & Co, a long-term QBE panel adviser. The merger took just six weeks to complete and guaranteed Parabis a broader insurance portfolio.
“Where they’ve been successful,” says one well-placed insurance partner, “has been in consolidating all that volume work, bringing in competitors and securing places on panels that have been cut to the bare bones.
“In the past you’d find several firms on an insurance claims panel that’s now been reduced to just two or three. There’s less work to go round, so it’s inevitable that the market will consolidate. Plexus is ahead of the game.”
“What we don’t have is legacy problems,” states Oliver. “We have a flexible ownership structure and the partnership plan is to remunerate people in a fair way.”
Oliver is no fan of the traditional partnership structure with lockstep entwined. He believes it does little for clients and is only in place to protect the profits of individual partners.
“Equity partners in traditional firms are self-employed and take a share of the profits,” he explains. “We don’t measure PEP [average profit per equity partner] partly because of the nature of what we do; it’s not a matrix we see as relevant. What’s important is keeping the quality of people and delivering a service. PEP isn’t the right benchmark for measuring that.”
Oliver is not keen to disclose exactly how many equity partners the firm has, nor how they are remunerated. He goes only so far as to say partners receive a base salary and have targets to achieve in order to receive bonuses.
“We remunerate our people as well as the next firm,” he hastens to add, “and that’s evident from the fact that it’s rare for people to leave.”
The acquisition trail is expected to accelerate once the firm converts to an LDP under the terms allowed by the LSA.
As an LDP Parabis will be able to install non-lawyers into the partnership.
“That’s exactly what we’re looking to do, so loss adjustors will be able to be partners or people who are in the rehabilitation unit will be promoted,” he explains.
The group employs nurses and physiotherapists through its rehabilitation units, who will also have the opportunity to take up partnership.
This means the firm will be able to provide everything from risk management services to help manage costs spiralling out of mass insurance claims to rehabilitation for those who have suffered accidents. For the insurance claims manager who would typically use legal services, this is potentially attractive as it strips unnecessary costs from the system.
Other firms that operate in this area, such as BLM and Beachcroft, would tend to outsource the value-added extras, thus pushing up costs for the insurer client. Meanwhile, they are under pressure to extract the value from their legal work to enable them to work on slim profit margins.
There is no doubt such firms are finding comfort in size. Beachcroft’s proposed merger with DAC is symptomatic of such cost pressures.
For Parabis, Oliver anticipates that in the long-term the separate brands that operate under its umbrella will be stripped back and that Parabis will become a single brand with separate divisions operating within it.
“An LDP will bring it all together and bring everyone under the same roof,” Oliver says. “We’re not a brand-precious firm.”
The prospect of taking outside investment does not excite Oliver, who says the firm has enough capital to fund its own acquisitions.
“Why would you want to do that? he queries. “Some firms will want the money to buy out retiring partners, but that will take time to develop.”
As for a possible IPO, which the LSA also allows for, he says his firm is simply “too small”.
Nevertheless, Oliver has built up an expertise in the implications of the LSA and believes it is the people entering the profession now who will bring about the most radical changes to the legal sector.
He foresees a profession in which partners trade in the business they have built up, with retiring partners able to sell their following at a market price to third parties without first having to consult with their partners.
This could be the driver for shared ownership of law firms between legal and non-legal entities.
But for Parabis, this is crystal ball-gazing; while Oliver can foresee such changes taking hold, he is less sure they will be in the next year or two.
Instead there will be a period of mass consolidation and one that Parabis could lead in the mid-tier, should it have the desire to.
Oliver is certainly ambitious. “I’d be disappointed if we didn’t make an announcement in the next two to three months,” he says. “There’s an increasing awareness for some firms that they need to plan for the future.”
The proposed merger between Clydes and BLG gives added impetus to that, Oliver stresses.
“I don’t think anyone can underestimate the significance of a merger like that,” he contends. “It’s going to be a £300m insurance practice that’s untouchable at the moment in terms of size and depth.
“We’ve never really seen a player of this size in the insurance world. Insurers don’t need lots of firms sitting on their panels, there are only two or three big firms there these days - and if you’re small you’ll be pushed out.”
Some naive competitors perceive Plexus to be an upstart, a fad to be snubbed. Oliver agrees that “people sometimes look at us as the new kid on the block”, but he insists that the group is here to stay.
Given its past performance - from zero to £100m in just a decade - there is no doubt Parabis will look to soak up its mid-tier competitors while also expanding its non-legal services.
“We continue to speak to organisations that are open to our way of thinking,” Oliver reveals. “This is still a people business and there
still needs to be a chemistry. Do I see us continuing along the same lines when we convert to an ABS [alternative business structure]? Yes, we’ll accelerate with an ABS.”
The implementation of the LSA will not start an instant revolution in the profession, but it will create space for new legal models. And with its £100m turnover and an acquisitive history, Parabis has a good base from which to kick-start an evolution.