12 Oct 2011

This article was written for and first featured in Insurance Day

Although the 6 October date was anticipated as the ‘big bang’, it’s still just around the corner…

The ‘big bang’ in legal services was set for 6 October 2011. However, the Solicitors Regulation Authority (SRA), the entity in pole position for licensing new entrants to the de-regulated market, will not be approved as a licensing body under the new regime until later this year and will not be ready to license bodies until early 2012. 

Insurers will be among those frustrated by the delay, given that many are looking to replace the income they will no longer generate if referral fees are banned. Some insurers would like to capture the profits generated by their panel of independent law firms, either by joint venturing with traditional firms or by competing with them. The natural investment target seems to be PI claims on behalf of insured persons against the other parties’ insurers. However, any area of law (such as employment, matrimonial, wills and probate) that is readily saleable to the common interest group that insured persons under a particular type of policy comprise, is a contender.

The change has been described as a move to ‘alternative business structures’. But when it comes, the change will not be about a move from partnerships to limited companies (or even from lawyer owners to non-lawyer owners), but will instead be about alternative ways of delivering legal services. The government’s ‘big idea’ is that the current professional adviser model is too expensive. New entrants, unencumbered by tradition, will steer the legal market towards cheaper, commoditised advice. The view that quality will suffer is countered by the argument that cheaper legal advice means greater access to justice and that, in any event, quality will not be harmed by the judicious systematisation of processes and application of clever IT solutions.

Solicitors’ firms have been feeling the winds of change. Traditional, consumer focused firms have suffered greatly, with a perfect storm of low housing market activity, cuts in legal aid, shrinking client panels and a new code of conduct driving up compliance costs. Once ‘big bang’ arrives, it is difficult to see how many of such firms can survive except through joint ventures with suppliers of work.

The as yet unanswered question is to what extent new entrants will remain in the low-cost high-volume areas currently envisaged. The most profitable law firms are not on the high street. Once new entrants turn their attention to high value work, the big bang really will have begun.

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