No one can have failed to notice the attention given to the various legal reforms that have taken place over the last couple of years. Indeed, this year we have probably seen more column inches on the subject than there are in the various Acts and Reforms themselves.
The sheer number and pace of these changes and new laws, has left little time for the vast majority of those affected to digest the impact. For those involved in the legal profession, it has almost become a full time job interpreting and communicating the changes. So what chance for the man on the Clapham Omnibus to be sure he doesn't inadvertently fall foul of the new laws?
In Labour, we have a Government that promotes itself as being more socially aware and concerned with the rights of individuals. On the campaign trail to being elected in May 1997, it promised swift changes to redress the balance of power that commercial organisations hold over individuals.
Legal aid reform
Changes so far have included reforming the legal aid system to improve access to the courts and making the legal process faster and easier to understand. The last 18 months has also seen considerable change on the employment front. A more level playing field for employees is being heralded through Working Time Regulations, Employment Relations Act, the National Minimum Wage and age and disability discrimination laws.
Nowadays, the amount of coverage given to legal rights in the popular press and on prime time television, is far greater than would have been expected only a few years ago.
Just think about the number of holidays/neighbours/builders/car dealers from hell programmes you see every time you switch on the television. The point is, the legal reforms have only just begun and our man on the Clapham Omnibus is waking up to what it all means.
The legal insurance market is showing a growing rise in the demand for personal non-motor legal cover. The demand is fuelled by this increasing awareness and we are now at the stage with household legal insurance that we were at with ULR eight to ten years ago.
However, while the legal insurance market is beginning to make better in-roads in the household sector, the commercial legal insurance sector remains mostly untapped.
The market is still struggling to get across the benefits of commercial legal insurance to intermediaries. To be fair, it has not always been promoted in the most user-friendly manner, and for most has remained a bit of a dark art. In these days of legal reform and increasing use of plain English, the opportunity has never been better to promote commercial legal insurance in a clear and simple way. It is important that the intermediary fully understands what they are selling and to be confident in promoting it in order to get the best from the selling process.
The market is certainly there and insurers and intermediaries need to work on it together. The realistic target market is the small to medium-sized business sector.
Larger organisations will, more likely than not, only need cover for specialist legal risks such as intellectual property.
They tend to have their own personnel and accounts departments to handle the weighty employment and taxation issues, or in some cases have a specialist legal department. However, a recent survey showed that in the first half of this year, 230,000 new businesses were set up and this is expected to grow to 400,000 by the end of the year. Of the new set-ups, it is estimated that 47% employ no more than two staff. It is also estimated that only five per cent of small to medium-sized firms have legal insurance. In recent times it has almost become an established practice for affinity groups, such as trade organisations, to arrange commercial legal benefits for their members. This has normally been arranged through specialist intermediaries. Indeed, the commercial scheme sector has seen considerable growth because intermediaries specialising in this business have been quick to spot the need for such cover as part of their risk management process, as well as recognising the opportunity to exploit a new commission income stream.
General insurers are making legal advice lines a common feature of their commercial policies and minor elements of legal cover are gradually making an appearance alongside the advice lines. And make no mistake about it, these advice lines are well used. It is easy for a small company to see the cost benefit of such a service, instead of having to find a solicitor and pay hundreds of pounds for a consultation.
Simplifying the cover
The way forward for legal insurers and their intermediaries is to simplify the cover and the methods of administration. Many policies are still written with the emphasis on legal jargon.
This creates problems for the intermediary trying to sell the policy, let alone the claims handlers trying to interpret and apply the cover. In some cases this has led to an element of mistrust between the intermediary and their client and the insurer. Plain English wordings that can be understood by all parties to the policy, have been available for some years. With the Lord Chancellor bringing plain English into the Civil Justice Reforms, the excuses for not writing policies in this way are running thin.
Individual polices have always presented problems for intermediaries and underwriters alike. They are time consuming and costly to administer, and prone to "adverse selection". In plain English, this means a policyholder buys the cover because they know there is a legal problem about to boil over. The policy is seen not as protection against the unforeseen, but rather an investment. The result – ever increasing premiums and a gradual alienation of the genuine insurance buyer.
A simple alternative is to set up a delegated authority scheme that will allow the cover to bolt on to the main commercial package, much the same way as uninsured loss recovery is bolted to the motor policy. This allows a greater degree of flexibility in package design and a better spread of risk.
A scheme can be tailored to suit the needs of a given client base which makes it relevant and easier to sell. After all, what is the point of a fixed individual policy giving employment contract cover for the small businesses which I mentioned earlier that do not employ staff?
All this adds up to relevant and easily understood cover that is cost effective, easy to administer and provides bigger margins for intermediaries.
It is up to the legal insurers to put more effort into promoting this cover but at the same time, intermediaries must recognise the opportunity that is there for them.Tierney, business development manager of Lawclub, looks at legal expenses insurance in the light of recent law reforms and the opportunities which these present for intermediaries.