Prediction: By 2023 there will be three global insurance firms, with the rest of the market having halved by consolidation into two groups
If there is one sector for which consolidation is the hallmark of its evolution, it is insurance. The game changed forever in 2011 when the Clyde & Co-Barlow Lyde & Gilbert and Beachcroft-DAC mergers confirmed that blanket coverage would be key, both at the top end of the market and in the mid-tier.
Ince & Co senior partner James Wilson sees the sector as a triangle, with firms sitting either at the geographical footprint, client sector or legal practice area corner.
“As the market consolidates, firms will gravitate to a corner and it will be that which differentiates them,” argues Wilson.
Firms that use geographical reach as their differentiator will be few and far between. Some are making moves to occupy that space but only a handful will establish a strong enough global brand to make it a unique selling point.
For the rest, it will be critical to have clarity on whether client sector or legal practice area is their dominant corner.
Insurance firms have been learning the hard way about downward pressure on pricing and this will continue. The insurance sector is not only knowledgeable about the cost of providing legal services, it is also cut-throat when it comes to appointing panel firms.
Stephenson Harwood insurance and reinsurance partner Alex Davis foresees serious problems for firms that do not engage closely with clients on pricing.
“The time-cost rate is obsolete already,” he says, adding that engaging on the subject at least enables firms to have their say.
The crux of the issue is that clients will impose a rate calculated on the cost of the service plus a reasonable profit margin. There will be no room for ramped up billing in the insurance practice of future.
Prediction: ABSs and the corporate structure will dominate the provision of legal services in the insurance sector
Non-lawyer management, group structures and consumer-friendly brands will be the legacy of the Legal Services Act.
Alternative business structures (ABSs) in the legal market are starting to have an impact. Fast-forward five years and the question of whether the partnership model will still be as prominent as it is today looms large. Many ABSs have shied away from partnerships, preferring the flexibility of a corporate structure.
There will be fewer lawyers around. Legal spend will fall significantly, forcing many firms to look again at how they respond to client demand and increased competition.
It is in the insurance market that the ABSs are making the biggest impact in 2013. By 2018 this will penetrate more deeply as firms consider how best to deliver value for money. This will be encouraged by in-house counsel, many under pressure to put personal relationships to one side and focus on reducing legal spend.
Already, the presence of procurement managers is being felt and many corporates are unwilling to continue to pay big bucks for anything but bet-the-farm cases. Choosing an ABS over a traditional firm may not guarantee a reduction in bills, but it does provide choice and competition – the basis for fee negotiations.
There may not have been a rush of private equity investment into firms, with many adopting a wait-and-see approach, but for firms that have reached deals the impact has been substantial.
It has been a year since Duke Street’s £50m investment in Parabis. The insurance-focused firm has become a more prominent competitor for insurance panel places, using technology to drive cost-efficiencies and attract clients. Like many ABSs, Parabis is a limited company, eschewing the traditional partnership structure in favour of a mix of lawyer and non-lawyer management in a corporate structure.
More firms will follow Parabis’ example. As Kingsmead Square executive director Chris Bull highlights, ABSs are having a cultural contagion effect.
“I don’t think there’s any part of the legal sector ABS won’t have an impact on,” he asserts.
Irwin Mitchell, which has five ABS licences, is trying to diversify by growing a corporate arm through big-name laterals. While it still has partner positions, in effect it operates a corporate group structure. The same is true for Co-op Legal Services, itself a subsidiary of Co-op, and Parabis, the umbrella for outfits including defendant firm Plexus and claimant firm Cogent.
Then there is Slater & Gordon, the Australian firm that acquired Russell Jones & Walker last year and last month announced the acquisition of personal injury firm Fentons.
Brands are still an alien concept to many City lawyers, but the profession is modernising, like it or not.
David Morley, Allen & Overy