It is unsettling and there's more to come, says Paul Asplin

Legal expenses insurance and related matters have received so much coverage of late, that I have wondered whether this publication might consider a change of title to Legal Insurance Times. But why is there so much market activity?

Although slowly fading from the headlines, the collapse of The Accident Group (TAG) and Claims Direct before it, continue to make waves in the market.

Obviously, the underwriters who jumped into bed with TAG are among the hardest hit.

The collapse of GoshawK's Syndicate 102 is a stark example of what happens when insurers involve themselves in areas they clearly don't understand and when basic underwriting principles - including moral hazard, in particular - are ignored.

Although the departure of GoshawK from the legal protection market will have little impact, the decision by NIG to put its special risks division into run-off/sale is a different story.

Apart from being involved in TAG, NIG also underwrote a significant number of legal expenses providers and these companies will now be actively searching for new underwriters, if they can find them.

It is a great pity that an important name like NIG will no longer be involved in the legal protection market.

The legal environment in which legal insurers operate continues to change almost weekly. The arguments over levels of ATE premium are far from settled and may yet go on for some time.

Until this process is complete, it must be doubtful as to whether or not underwriters can operate in the ATE sector with 100% confidence.

Another change that is about to impact on the market is the introduction of fixed recoverable costs in road accident cases. Clearly, the liability insurers are hoping that fixed fees will reduce their costs.

Personally, I very much doubt this as the statutory instrument has been poorly drafted and leaves a lot of unanswered questions.

I expect there will be a considerable amount of satellite litigation regarding fixed fees, just as there was when the arguments regarding credit car hire broke out a few years ago.

In the longer term, the Law Society's decision to allow solicitors to accept investment from non solicitors is a significant development and will undoubtedly pave the way for new legal service companies providing popular (and profitable) legal services to consumers.

Undoubtedly, the more established legal expenses insurers will be closely involved in this market as, clearly, they are responsible for generating millions of pounds of legal work every year, which potentially gives them a good base to develop new business ventures.

However, even this new sector is already suffering from ill-informed comments.

I read an observation recently from one new legal protection company (with a pedigree of about six months) which is already saying that the "big boys" will be watching its business model carefully and quaking in their shoes as it drives through fundamental changes to the market.

On closer reading, its business model seems to be based on cut-price legal protection offers.

Funnily enough, I think I have seen this all before.

I have lost count of the number of legal protection companies that have gone bust over the past few years and no doubt there will be more to follow. It seems that if you can find a sucker as an underwriter then anything is possible.

  • Paul Asplin is managing director of DAS
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