UK200: Commoditisation and consolidation

What impact are ABS firms having on the insurance legal market?

A seismic shift is happening in the consumer claims market led by a firm that only began life in 2001 – Parabis. It emerged today that the firm has attracted Direct Line as a new business partner, with the RBS-owned insurer applying for an ABS licence to enable it to move into the legal sector (16 July 2013).

This comes just weeks after BGL Group, owner of the Compare the Market brand, made its first move into the legal sector through the proposed acquisition of Minster Law (31 May 2013).

In the world of consumer insurance – or personal lines as it is known in the financial markets – these are two weighty behemoths slugging it out for contention.

Direct Line makes much of the fact that it is does not sit on any comparison websites, whereas BGL is best known for its comparison website brand. The legal market is likely to become their new battleground.

Let’s be clear, there are differences between the two deals. True, both are applying for an ABS licence, but BGL will acquire Minster whereas Direct Line plans to launch a new firm, DLG Legal Services, in partnership with Parabis.

It has been a busy few years for Parabis Law founder Tim Oliver, a former Berryman Lace Mawer (BLM) partner. The firm made its debut in The Lawyer UK200 in 2011 with revenues of £100m, representing a 17.6 per cent hike from £85m a year earlier.

To give that some context, that revenue figure was larger than those produced by Barlow Lyde & Gilbert in the same year, which posted a turnover of £94.5m, and Kennedys, where turnover figure stood at £97.4m. Beachcroft was yet to merge with Davies Arnold Cooper, and the former had revenues of £134m, compared with DAC’s £43m, while BLM was a solid market player with revenues of £78.8m.

Take another look at the same group of firms at the 2012/13 year end and it is not difficult to see how the sector is changing, driven in part by ABS’, by consolidation and, most significantly, client fee pressures.

The Parabis Group has grown by 39 per cent to £139m, helped along by a £50m cash injection by Duke Street (6 February 2013) as well as the odd merger along the way. In the last year the firm has moved into Scotland, launching offices in Glasgow and Edinburgh through lateral hires from HBJ Claims Solutions and Brodies (3 April 2013). There has also been the extension of its deal to provide legal services to over-50s insurer Saga and, most recently, the planned tie-up with Greenwoods (7 May 2013).

The same peer group – with the exception of DWF – have not been able to keep the same pace. Kennedys’ turnover rose to £117m at the end of 2012/13 to £117m (26 June 2013), putting it up 20 per cent on 2010/11, while BLM’s revenues have risen by 7.5 per cent over the same period to £84.7m.

At DAC Beachcroft, where growth has been focused outside the UK, taking combined 2010/11 revenues of £177m, the firm has grown by 6.3 per cent to £188.2m (15 July 2013).

DWF, the biggest success story in terms of figures, has pushed revenues up 84 per cent to £188m, thanks to its frenzy of mergers (6 June 2013). BLG, meanwhile, has been snapped up by its biggest rival, Clyde & Co (8 August 2011), which saw revenues rise from £287m to £336.6m over the last year (11 June 2013).

Many of these firms have been doing all they can to broaden the reach across all levels of services. DAC Beachcroft, for instance, is attempting to commoditise its model from the bottom up while also building out into new specialist services (31 October 2011). Kennedys, meanwhile, is planning deeper penetration into the Lloyd’s of London market following its takeover of aviation boutique Gates & Partners (31 May 2013).

Oliver says that Parabis’ merger with Greenwoods would give it access to the large catastrophic cases and build on its specialist capabilities. He is clear that specialist practices are the desired growth area going forward and, if the firm can bring some of its commoditised expertise to bear in these big money claims it will bring yet more competition in the sector.

When Sir David Clementi outlined his vision for legal services in 2004 the aim was to introduce greater competition to the legal profession. It might have taken an economic collapse to spur some pockets of the profession into action, but Clementi’s vision is starting to take shape.