One could be forgiven for thinking that life must be bleak in the Birmingham insurance market at the moment.
Two weeks ago, as revealed in The Lawyer (6 May), Eversheds closed its Birmingham insurance practice – and it was not the first to do so. In January 2001, Hammond Suddards Edge closed its Birmingham claimant practice, and in December, Pinsent Curtis Biddle announced redundancies in its professional indemnity groups in Birmingham, London and Leeds.
The Eversheds team of seven, led by Geoff Owen, who originally took his insurance motor team from DLA to Eversheds in December 1998, disbanded the department on 1 May. An Eversheds spokesperson told The Lawyer at the time of the closure: “The insurance department in Birmingham was shut down as a result of Owen’s decision to go part time and the firm’s decision to concentrate on Nottingham, where the insurance team is more established.”
But these closures are not necessarily an indication of market malaise. “This is not a trend,” says a senior partner at a rival firm. “The market, although obviously competitive, is fine.”
“Eversheds’ closure is purely a result of Owen’s departure,” he continues. “He was the leading light there. Most of their contacts were his personally and they’ll probably follow him. This is a personality thing.”
Indeed, Owen has taken a number of files with him to his new firm Silverbeck Rymer, where he is a part-time consultant. And while the closure has also meant new clients for other firms such as Davies Lavery and Beachcroft Wansbroughs, its impact on the market will not be that great. “Eversheds were never a significant player to start with,” says a partner at another firm.
The loss of the Pinsents partners can be traced directly to the demise of the Solicitors Indemnity Fund, which was a major client of the firm. And Hammonds’ closure was the result of its decision to concentrate on higher-value corporate insurance work following its merger with Edge Ellison.
Both of these closures are to some extent indicative of changes in the marketplace, where competition is at present particularly fierce.
“The market is shrinking and it’s highly competitive,” says Sara May, head of the insurance practice at Beachcroft Wansbroughs.
“Birmingham can be seen as a microcosm for the [insurance] marketplace as a whole,” says Mark Hick, a partner at Wragge & Co. “Generally speaking, there’s substantially less litigation since the Woolf reforms. The consolidation of the insurance market has also seen the larger companies driving prices down.”
This has meant that firms have had to reassess the value of their personal injury (PI) practices. “The larger firms who have a commercial business practice find it more difficult in the current marketplace to remain dealing with PI,” says Chris Davis, an insurance partner at Putsmans. “Larger firms have made a conscious decision. The work needs a significant number of fee-earners, and with the squeeze on hourly rates, they asked, ‘Is it really worthwhile?'”
“We continue to do PI work wherever we can do it profitably,” notes Hick. While it still has a team of about 20 working on PI, he says the firm has continued to increase its work involving more complex products, such as tax indemnity policies and other products typical in connection with M&A.
For other firms, the squeeze on prices has meant they have had to change their approach to the way they manage such claims.
“For insurance companies, the bulk of the work is low value, high volume-type work; that’s 80 per cent of their business,” says May. “And it’s a core area of our business, one which we’ve invested in very heavily.
“We reassessed our approach to managing such claims. We have alternative charging structures and more flexible arrangements for high-volume, fast-track work under £15,000.”
But some say the squeeze on fees is coming to an end. “With some firms, there’s been a drop in quality, and the results haven’t been as good,” says Alan Jacobs, a partner at DLA.
Consequently, insurers may have found themselves paying less in fees but more in damages and costs from the other side.
“Insurers are starting to realise that there’s the need to pay the proper price for this work,” says Jacobs, and as a result he believes that fees are bouncing back up.
However, this will not necessarily lead to an increase of firms in the market. “We’re not likely to see big, new major players,” says Jacobs. “It will be narrowed down to those firms that are very focused on insurance; they are the only ones who are well enough resourced to do it.”