Freed from restraint

A shopper skidding on a banana skin in Tesco could find a personal injury lawyer based conveniently close to the fruit and veg counter - literally in-store. This situation could arise under proposed changes to the legal market by way of deregulation, which would allow other organisations to offer legal services.In the biggest changes the market has seen, consumers will be offered more choice and opportunity. For insurers, already battered by compensation culture, these changes are not necessarily going to mean an increase in litigation. In fact, most pundits believe they will be beneficial, offering more flexibility for legal services and providing sales opportunities for those insurers who choose to provide legal services direct to the public.The changes were put forward by Lord Falconer, the Lord Chancellor, in the summer and further detail is being discussed in a current independent review chaired by David Clementi, the former deputy governor of the Bank of England and chairman of Prudential.Clementi's review panel is studying legislation for a more open legal market, as well as a new agency to oversee the legal profession. The final government report on deregulation is expected in December 2004, with it coming into force two years later. As a first step, Lord Falconer announced that banks, building societies and insurance companies will be allowed to compete with solicitors in offering probate services - winding up estates after death. The Law Society, which represents 90,000 solicitors, may lose its self-regulating powers and a new organisation - a type of FSA for the legal profession - would regulate all those offering legal services.There have been some rumblings of discontent. Some small high street solicitors offering conveyancing, for example, fear they could lose out as a small shop does to a supermarket. A further concern is that one-stop shops, where lawyers, IFAs and accountants combine, would dominate the market. These businesses could cherry-pick clients, leaving clients with more complex cases disadvantaged.Barristers have hit out too at the concept of one-stop shops for legal services, with the bar's chairman Matthias Kelly claiming this would lead to the "Enronisation" of the legal profession. Lord Falconer replied: "I don't think they should be apprehensive. It is not saying there will be fewer lawyers, but that there will be different ways of providing services that meet the needs of their client." And, many solicitors are looking on the bright side. In a speech last month, Law Society president Peter Williamson said: "I foresee a new flexible legal services market. Perhaps there will be more channels and choice for obtaining legal services. I hope that more price options might be available depending on the level of services, or the complexity of the advice required."

Less dauntingHe predicts the setting-up of one-stop shops involving solicitors, financial advisers, estate agents and even local councils with the same level of consumer protection. "There would be clearer information about the cost of legal services. Going to see a solicitor at a large outlet, or a local partnership of estate agents, solicitors and financial advisers would seem a less daunting prospect."But, what will a deregulated market mean for insurers and those lawyers who focus on the sector? On the defence side, massive changes are not anticipated, although deregulation could lead to more insurers taking on in-house lawyers, particularly when it comes to liability claims.Currently, much litigious liability work is outsourced, but relaxation of the rules could prompt some insurers to look to building up in-house teams. Legal panels are already a sensitive area. A number of major insurers have already slashed their panel numbers, which has led to leaner and cheaper provision of services. There are still accusations that lawyers are overcharging. Most recently AXA has demanded refunds from some of its panel firms, claiming they were hiking up costs.Crutes is one firm that came through well for a recent beauty parade for Zurich, which recently cut its panel. Crutes senior partner Tim Wallis says defence work tends to be more effective if handled by an outside firm. "There have been cases where an in-house team has been successful in managing claims before they are given to an external practice, but in others it has not worked. Even so, some insurers may think the grass is greener and look to cut back even more on panels."He points out that while it may appear cheaper to use in-house lawyers, this may not be so. "Using a firm of solicitors may involve an hourly rate, but what an insurer would then need to add on if it wanted its own team would be the huge costs of training, compliance and indeed salaries. A law firm will tend to have the best people and be able to deal with a wider variety of cases."The RAC is one organisation that is keen to grab a share of the deregulated market. And it has been suggested in the press that this could include taking on work for insurers.But RAC managing director Eddie Ryan says the aim is to focus more on consumers. "Our expertise in the legal market began in 1908 and predates our breakdown service. We are restricted on what we can and cannot offer, but once the market changes, we'll be able to offer legal services to everyone."Current rules mean member associations like the RAC can only take on personal injury cases for its members. But an open market would allow it to offer services in conveyancing, wills, property disputes and probate.Although deregulation remains at the consultation stage, Ryan says there is no doubt that it will happen. "The government has made its intentions very clear. There is room for this in the market and, as we see it, it's like pushing at an open door. The one area we are concerned about, and where we want to work alongside the Law Society, is for proper consumer protection to be built into the changes."The RAC is now on a mission to recruit solicitors and is planning the launch of a new company, RAC Law, once deregulation happens.

Consumer demandRyan says once RAC Law is operational acquiring solicitors is also a possibility, as is offering white label services. And, this might include providing these for major retailers.Insurers too are looking at opportunities. More Th>n, the direct arm of Royal & SunAlliance, is also considering offering legal services direct to the public. The insurer presently provides legal expenses insurance to its policyholders, online legal documents and a helpline.Spokesman Jon Sellors says there is demand from consumers to buy from a trusted brand name. "In the case of a legal problem, such as divorce, many people don't know which firm of solicitors to use. We see deregulation as likely to produce a big market for us."Insurers setting up separate legal services divisions could also look at white labelling opportunities. Direct Line, through its UKI Partnerships division, currently underwrites Tesco's insurance policies. The same concept could also apply to providing a supermarket's legal products.So far, it seems that deregulation is likely to be good news. It has already been mooted that it will create more jobs for solicitors; newer firms could offer more family friendly practices and be more flexible than many traditional solicitors.A further key issue is what would happen to claims farming companies in a deregulated market. With the demise of The Accident Group and Claims Direct, this sector already appears troubled. But some continue to find business because they offer a more approachable face to the public. This sector remains unregulated - under Lord Falconer's plans.Arc Legal Assistance director Richard Finan believes traditional legal expenses providers will also lose out: "We believe that deregulation is likely to cut off work for legal expenses insurers. Currently, much of this work being handled by these providers in-house could go to new players. For example, the RAC has announced it wants a share of the market."He argues that there has been little innovation in legal expenses provision for the last 20 years and that providers tend to be admin-heavy and inefficient.Arc Legal Assistance, he says, has a far more modern and cost effective structure. "We act as a facilitator between the underwriters and lawyers and can set up better legal expenses offerings. We also work only with solicitors to provide the legal services, which means the best people deal with claims.Arc is currently working with solicitors Irwin Mitchell and has an underwriter panel including AXA. Finan says: "No one else is doing what we're doing and deregulation is going to lead to a very different market for insurers and consumers buying insurance services. I imagine companies like DAS and Capita are keeping a very close eye on the the RAC's plans and on our model. We have already shown we can undercut competitors by as much as 30% because we are more streamlined."Easy access, big brand legal services will create winners and a few losers too. Insurers and lawyers who spend so much time working together now have new opportunities that are undoubtedly going to shake up the market.

How will law firms cope after deregulation

Proposed changes to the legal system