‘Personal Injury Shocked and Shaken Up’
The only thing that has come as a surprise is that the Government have responded so quickly and indeed over a month earlier than they said they would, in relation to the proposed whiplash reforms. The content of their response I doubt has shocked anyone. There has been so much talk about raising the small claims limit in the last decade that eventually it had to come. To my mind, the purported involvement of the wider personal injury sector was always a political move to create a give-away and really concentrate on the motor sector. Indeed, the raising of the small claims limit to £2,000 for other areas will more than likely benefit Claimants and be a disadvantage to insurers.
However, the big news is of course the increase in the small claims limit to £5,000 and therefore the removal of recoverable legal costs for soft tissue injuries sustained in motor accidents and the introduction of a tariff.
The Implication of the Reforms
Any law firm or accident management broker which relies significantly on income from motor related personal injury claims has significant threat to its business. If they are entirely reliant upon income from that sector, then I don’t see how they have a business. However, there are many specialist personal injury firms that simply rely upon the motor work to provide cash flow to allow them to fund bigger cases and generate marketing spend to attract new work. Unless the businesses have sufficient scale, again I don’t see how they can survive, not because they can’t make a profit but because they are in danger or running out of cash, especially since lawyers are no longer flavour of the month with the banking sector.
I would therefore predict a significant contraction of that market and I don’t see how many of the small to medium boutique style businesses can survive. That said, wherever there is a threat there is normally an equal and opposite opportunity and I would imagine the bigger players who enjoy critical mass and economies of scale will re-engineer themselves so as to still be capable of providing a full service.
The reason why this may be possible is of course the introduction of the tariff which means that frictional cost should be reduced to virtually zero and the skill in valuing a claim, or arguing as to where within the bracket it fits, disappears because the medical evidence should, at least in theory, provide a definitive figure at which the case can settle, 0-3 months, 3-6 months etc.
Turning Full Circle
The thing that strikes me about the proposals is that it is a little bit like winding the clock back 25 years. It used to be commonplace for there to be a legitimate claim for ‘shock and shaking up’ but that was challenged by the case of Nicholls v Rushton and suddenly, unless you had a recognised psychiatric disorder, then you were not entitled to compensation. On what inevitably the more routine whiplash injury was borne, and we all know what happened from then on particularly post-Woolf. It strikes me that these reforms simply take us back to that time whereby minor injuries are legitimised and compensated, the only difference is you now need to pay almost as much to get a medical report as you do to receive the compensation, particularly since pre-medical offers are to be banned.
No doubt the medical agencies will be rubbing their hands at the thought but insurers will be a little wary about claims frequency, as potentially this introduces a whole new tranche of Claimants who currently wouldn’t consider making a claim. The challenge will be attracting the claims enquiries and creating a customer experience as simple as possible, otherwise there is of course a danger that people simply won’t be bothered, albeit the culture of compensation for delayed flights and PPI suggest that if it is on offer people will take it.
What to do with my Law Firm?
I am sure there will be many owners of personal injury firms scratching their head and wondering where to next?
I certainly don’t think there is any future in boutique law firms specialising in motor claims, so I think the options are relatively simple:-
- Liquidate the business for the maximum possible value
- Consolidate with a number of other business to create economies of scale and diversify
this is not necessarily straightforward and it will be interesting to see who tries to achieve what. Some of the more established firms where the ownership may be held by people contemplating retirement in any event, are more than likely to opt for option one and no doubt Accountants and Insolvency Practitioners will be able to give some thought as to the best way to extract maximum value from the businesses at the optimum tax rate.
As I believe Charles Darwin is supposed to have once said;
‘…it is not necessarily the strongest or the fittest that survive, it is those most adaptable to change…’
well that certainly applies to now, change or face extinction!
From Osborne to Hammond – 12 months of nothing
With the first Autumn Statement from the new Chancellor, Philip Hammond fast approaching, the insurance and personal injury sectors will be listening intently. Following George Osborne’s final Autumn Statement, in which he floored many with his proposal to ban damages for routine soft tissue damages as a result of motor accidents. Osborne then proceeded to put the final nail into the personal injury coffin with the increase of the small claims limit to £5,000.
The oft referenced, never proven, compensation culture was finally beaten as party streamers and balloons fell from the sky onto a jovial Osborne as MPs chanted his name… Okay, none of this happened outside of the ex-Chancellor’s mind, but if there was ever a moment for an 80s movie montage, that was it.
Perhaps one industry that did receive a movie montage was insurance. They had once again whispered sweet nothings into the Chancellor’s ear; stroking his leg seductively until they receive those diamond earrings. This was LASPO all over again.
What happened next?
So what has happened in the 12 months since this rather unexpected announcement? The simple answer is not a lot and frankly the uncertainty that it leaves around this sector is far worse than any kind of reform itself.
Anyone trying to plan a business will know that without a reasonable idea of the future, you might as well be fumbling around in the dark. Being at a crossroads is the worst of all worlds when you don’t know whether the best option is left or right or indeed straight ahead.
Let’s take a look at the small claims limit
For years this idea has been bandied around with everyone having their say. Insurance companies loved the idea, with the majority of claims likely to stumble at the first hurdle. Maybe this will save the £2bn that whiplash costs the insurance industry each year, although wasn’t LASPO supposed to have already done that?
Osborne’s banning of soft tissue injury claims is possibly the hardest pill to swallow because it came so out of the blue. Anyone who has been unfortunate enough to suffer with a soft tissue injury will tell you that it isn’t a walk in the park. Just because it doesn’t show up on an X-ray, doesn’t mean that the pain is any less real.
In the last 18 months, the insurance fraud task force has done a great deal of work to incorporate changes that could benefit both the insurance and personal injury sectors yet many of those appear to have been overlooked in favour of increasing the small claims limit. Where is the consultation? Where is the compromise?
Perhaps the biggest spanner in the works for the reforms is Brexit. Widely believed by many to be a non-starter, Brexit shocked the nation and toppled leaders in its wake. There was hope among the personal injury sector that the proposals would be lost in the long grass, although many insurers and James Dalton of the ABI will be doing their best to keep the life support machine maintained and functioning. Just think of James Dalton as the over eager lifeguard at a beach full of good looking 20 somethings jumping to their aid every time one of them stops splashing.
The problem that has plagued the industry in the past is the speed at which changes are implemented without a proper consultation or ‘bedding in’ period. Just a quick look at the recent MedCo reforms highlights the ineptitude we can expect from Government backed proposals.
With the unveiling of a new Chancellor, the Government is in an ideal position to rectify the sins of the past. Instead of running headfirst into a fog, Hammond could sit down with representatives from the various sectors and look at this from a fresh perspective.
Instead of alienating an entire industry based on ill founded facts from Americanised sound bites, why not listen to both sides of the argument and come up with a fair proposal, one that doesn’t favour one side over the other and instead focuses on the general public who seem to have been forgotten altogether.
Before we get the usual rhetoric of the insurance companies doing this for the people, they should perhaps look at their recent plan to increase insurance premiums and ask who that helps. Surely LASPO and MedCo were meant to put savings back into the pockets of the man on the street; instead those who were meant to benefit the most have saved the least and soon will have no recompense should they be the unfortunate victim of an accident that wasn’t their fault.
We’ve tried shouting over each other and going with the loudest voice and that didn’t work, maybe we should try listening to each other and compromising. Or, we could just continue to take away people’s civil liberties until they break, whichever is easier.
Buying & Selling Legal Businesses
Market forces can be dangerous beasts, something the legal sector is now all too well aware of, none more so than those within Slater & Gordon who are of course at the very sharp end being a public company.
Reading some of the comments in the press causes me grave concern about the profession and in my view demonstrates naivety from many quarters. Naturally I would feel sympathy for anyone who may lose their job but the vitriol directed at some of the executives is unnecessary I think and sounds to me like gloating from some quarters.
Rightly or wrongly the Legal Services Act has opened up the legal services market. The extent of external investment has in my view been very small but unfortunately in some instances where it has happened the business has not gone on to be a rip roaring success, most notably the recent breaking up of the Parabis Group. However, this does not mean that they have become bad businesses overnight, what it may mean is that the deal they did to bring in investment was not necessarily the best deal for one party or another.
Is there capital value in a law firm?
To me this is the $1 question and I am afraid there is no simple answer. My opinion is that it very much depends on how the law firm gets its customers. If they use the business because of the individuals working there then I would argue there is little or no value. However, if those customers use the law firm because of the business itself, for example due to the brand, albeit that is a whole other debate – does a legal brand exist – or because of a long term repeat contract, then it could be a different picture.
The digital age has allowed some legal business to create a presence and attract work using pure marketing methodologies, whereas others relay on networking and the reputation of their lawyers. It is the latter which I think has less value or is more risky quite simply because if those lawyers who are good net-workers or have an excellent reputation in their field don’t like the new regime they will vote with their feet and move on, more than likely taking the work with them.
It is no coincidence in my view that the major acquisitions in the legal market have been of firms which, at least on the face of it, have had good repeat work opportunities based on a contractual position as opposed to people power. For example;
Fairpoint Group PLC buying Simpson Millar & then Colemans CTTS – Trade Union and insurance links underpinned the work flow
Private equity investment into Keoghs & Parabis – work flow underpinned by long standing insurance contracts
If an acquisition doesn’t work out, I would argue that you can not just point the finger at the selling firm or the lawyers who remain. There could be complex financial structures put in place which overwhelm the legal business, put simply, may be they paid too much for it.
Ultimately what we are seeing is market forces at work in their purest form. Within an old fashioned Partnership you can hide a dip in performance or even chose to take a step back, that does not cut it in the Public Company or Private Equity world.
In truth we have not seen a rush to invest in the sector, certainly nothing like what was predicted, possibly because of the past experience with the Accountants. Recent turbulence will not stop investment but I do think it will make those currently outside of legal think long and hard before committing.
Will the Broadhurst decision change Part 36 behaviours?
If I am not mistaken (which is entirely possible) this is the first case where a Claimant has beaten their own Part 36 offer for damages. I know of numerous instances where it has happened in Costs disputes but not the substantive claim.
When I read the decision and some of the comments, for example from my learned friend “The Prof” Dominic Reagan who called it “..stupendous..” the first thing that I wondered was;
“Will it make any difference or change behaviours?”
If it doesn’t then it could be of little consequence. I tend to agree with the view from the Association of Personal Injury Lawyers president Matthew Stockwell who said it was ‘…difficult to overstate how important this is given proposed extension of fixed costs…’
As a lawyer who worked predominantly on the defence side for over 20 years, it was a constant frustration that opponents would not make settlement proposals even when Part 36 was first introduced, but arguably the stakes were not high enough. That is no longer the case and if fixed costs are extended, as most expect, I think this tool will be employed by more and more good Claimant lawyers for the benefit of both themselves and their clients.
So what are the potential consequences of claimant offers to settle?
- Quicker settlements good for the client
- Shorter case life cycles good for the lawyer in fixed fee cases
- Defendant has a choice they can conclude the case and move on or roll the dice
Where could this get interesting?
Some compensators rely heavily on damages calculation tools, on occasions slavishly, and they could now be at serious risk from well calculated Claimant Part 36 Offers which, if successful, could hugely increase their claims spend with orders for indemnity costs.
What do I think will happen in practice?
The reason this is the first time the issue has come before the court is that in truth any good defendant lawyer ought to be capable of valuing an opponent’s case, and indeed building in a tolerance for the Court where it may be heard, and so assessing any offer received. There is then a threshold within which it is simply not economic to proceed. As such any reasonable offer ought to be accepted.
I do think it will encourage more claimant offers to settle which is a good thing.
The combined result of the above ought to be quicker settlements for Claimants but I would be surprised if there were regular indemnity costs orders.
Managing performance in Law Firms – Have you got it right?
As we approach the mid-point of Q 1, I expect many Managing Partners have held or are about to hold their first Management Meetings of 2016. How is it looking? Ideally you will be on or ahead of your plans, but if not you may be wondering why and more importantly if you can catch up.
Whatever the position, you may want to ask yourself some questions;
- Have you set the right targets?
- Are you measuring the right things?
I’m my experience setting performance targets in law firms can often be a very ad hoc process with little or no science behind it. It can be a crude as;
“…well you achieved £X last year so shall we say £X + 10% for 2016…?”
Looking for growth is laudable but I think it has to be based on sound rationale. Who is to say that this arbitrary increase is correct, it could be too low in which case it becomes easily achievable and you may over reward the individual or team concerned. Equally it may be too high and so wholly unachievable which is de-motivating.
I definitely subscribe to the mantra that – “…what gets measured gets done…” but that does of course assume that you are measuring the right things. My recommendation would be to ask yourself what behaviours are the targets you set likely to drive?
- Do those targets fit with your strategic goals?
- Are the targets relevant for your kind of business?
A great example is rewarding people on bills delivered, but ignoring cash received. This simply encourages people to invoice as much as they can without any thought as to whether the client will agree and then pay the bill.
I would favour an approach based on client satisfaction, as in my experience happy clients pay bills and will recommend others to use your services!
Also do the targets encourage a silo mentality or team work? If rewards are simply based on personal performance then why would people work together? Whereas, if there are elements of team performance and indeed the performance of the wider business which result in reward, you will create a more unified approach.
My final tip would be not to operate a secret society. Be inclusive and share good news but also explain bad news. Most people care about the businesses they work for and want to do well. If you involve them they tend to work harder to achieve the goals you set.