When you’ve lost your appetite for claimant PI
Claimant PI firms have had a tough few years and the recent Chancellor’s speech can’t have been easy listening.
Over the last few months, we’ve certainly fielded more enquiries than usual, signifying that parts of the sector are beginning to lose their appetite for claimant personal injury (PI).
There seems to be more PI firms willing to outsource the completion of the legal services required on the balance of their PI cases as pre-LASPO matters reach a conclusion, as opposed to completely running off the book of business internally.
With the Chancellors’ speech reinforcing the feeling that further change is inevitable, it seems many are now accepting that the world of claimant PI is only going to become harder and they have reached a conclusion that their working capital is better invested elsewhere.
Regardless of the size of the firm or the timing of a reduction in the number of new matters being opened, two and a half years from the introduction of LASPO, many firms have been experiencing a reduction in cash inflows from pre-LASPO work and have first-hand experience of the challenges presented by the post-LASPO market.
It seems some are now looking for the most efficient ways of realising the remaining value locked up in claimant PI work in progress (WIP), while recognising that underutilising their own resource does not maximise efficiency.
Historically, one of the challenges has been the lack of viable methodology in terms of how to step away from all or specific areas of claimant PI. The disadvantages of net cash trade sales – heavy discounts and litigation emerging over deferred firm-to-firm sales to name but a few – has led firms to ignore all other routes from exiting the sector other than internal run-off.
And of course, internal run-off feels great to begin with! Without the expenditure in terms of the acquisition costs for new work and inflows around the same level, cash flow is positive and masks the likely increases in waste and inefficiency.
But here’s the reality. Cash inflow becomes less consistent as an internal run-off progresses and matching the cost of resource with the work requirement remaining becomes more challenging. There would appear to be growing recognition that completing the job internally is not only inefficient, but also a significant distraction, as closely managing a graveyard detracts from focussing on the future and what can be done once the asset has been extinguished.
It has been heartening to note an increasing appetite to outsource aggregated run-off services. While we always felt there was a compelling argument for a model that mirrors the successful models used in both the insurance and funding markets, in terms of aggregating closed books of business, it would appear to have taken the actual outcome of early projects to prove the theory and gain interest from a wider audience. No doubt there will be other factors at play, not least timing and the fact that a significant proportion of pre-LASPO work has been concluded. Perhaps also there is a growing acceptance that for the most efficient firms, there is still headroom and further restrictions on generating revenue are to come.
Regardless of the reasons for the increased activity, given that the transition from pre to post-LASPO was always going to be painful, there is increasing recognition that it can be eased by retaining the full value incumbent in the file while ensuring that the right firm for the individual claimant takes the matter to a conclusion.
Life has certainly been a rollercoaster for claimant PI firms in England and Wales, but there are now viable opportunities to get off it and to do so without writing off a significant proportion of everything that has been built up over the years.