In the absence of a crystal ball
After another turbulent year for claimant personal injury (PI) law firms, many will be left feeling apprehensive about what the future will bring.
Of course nobody knows for certain, life has a habit of throwing curve balls, but here’s what I think might happen for the claimant PI sector in 2016.
Recently published legal sector analysis has highlighted the unprecedented levels of solicitor firm failures in recent years. The reducing pre-LASPO work in progress (WIP) realisations and the added challenges coming in 2017 will lead to others. The fact that dividends for unsecured creditors is lower where a firm of solicitors is concerned, when compared to any other sector, should not be surprising. There are many reasons for this, but high on the list is the reluctance of solicitors to seek external advice early when the road gets rocky, as well as the lack of experience within the restructuring profession of dealing with the legal sector.
Most restructuring firms have little experience of a sector that certainly has unique features, meaning only a few specialist firms have the depth of understanding necessary to secure the best outcome for creditors. In addition, behaviour drivers for both sides of the equation mean they are, by nature, providers of advice rather than recipients.
A number of specialist Insolvency Practitioners (IPs) have emerged in recent years and solicitors and creditors need to research their choice of adviser if the best outcome is to be achieved. Where IPs are approached, who do not have experience of the sector, they really need to invest time in understanding that the legal sector is different. As neither are easy objectives to achieve, expect more of the same.
The flip side of the coin is that many claimant PI firms have adapted and flourished post-LASPO. Additionally, they have either accepted that further change will come and are geared up for it or are already adapting their organisations to deal with the inevitable.
With the number of rods fishing in the claimant PI pond reducing, the client acquisition process is also changing. While unlikely to get back to cost of acquisition levels pre-2000 and the introduction of Access to Justice of less than £100 per client, who knows, gradually the balance of power in terms of advertising and marketing costs will shift.
This journey will not conclude in 2016, however I believe that this year will potentially see that process accelerate compared to the progress made over the last three years. We’ve seen the number of firms actively promoting PI services fall significantly over the last three years. The Find a Solicitor service now returns just over 3,600 firms for PI services, at the point LASPO was introduced the figure was reportedly north of 4,500.
This still leaves massive consolidation of the sector to come and with many operating on dramatically lower new inceptions and depleting historical WIP, the process of leaving the sector may also accelerate in 2016, effectively increasing the pace of change in terms of acquisition cost for the remaining firms predicted above.
I do not believe that we’ll ever see three firms control 50% of the market share as predicted by Slater & Gordon. However, I do suspect it will eventually reach a position that is roughly proportional to what has existed in Scotland for many years, with less than 100 firms controlling 80% of the market and another 400 or so having a meaningful exposure to the remaining 20% of the market. Not that I think it will happen in the next 12 months, but it is likely to move further towards it.
As I said, nobody knows for certain, there is no crystal ball, but one thing we can all be certain of is there is no end in sight in terms of the government’s desire to continually marginalise the claimant personal injury sector.