Which insurer will be first to own a law firm?

This week saw the Solicitors Regulation Authority launch a handbook laying out details of how it will regulate and operate alternative business structures (ABSs).

The new structures, laid out in the Legal Services Act, will relax legislation on the ownership and operation of law firms.

This means that non-legal firms such as insurers, banks and supermarkets can join forces with law firms or buy them out.

First off the starting blocks

WH Smith played its hand this week as it announced a deal with law firm QualitySolicitors to offer in-store legal advice.

QualitySolicitors staff inside WH Smiths stores will book appointments, give conveyancing quotes, sell will packages and give legal advice.

Will insurers bite?

So what is the appetite for ABSs from the insurance industry?

DAS chief executive Paul Asplin is now eager to buy a law firm.

Abbey Protection director Chris Ward is not planning to buy a law firm outright, but says Abbey will hire more lawyers and offer to handle more legal services such as property disputes and health and safety work.

AXA’s David Williams says the insurer has similar plans. AXA is keeping a close eye on the issue, he says, and may ramp up the range of work for the solicitors already on its books.

He adds: “Insurers have this view that we should own everything, control everything. I’d much rather we controlled more of the process than less, if we can.

“But looking at your financials, customer service, every aspect – you’ve got to be convinced that bringing it in-house or owning it is going to bring a better result rather than bringing an extra toy for someone to play with.”

‘It wouldn’t work’

Interest in the issue is still running high but, for some, the initial excitement has given way to a more cautious approach.

Garwyn commercial director Nick Patterson says the loss adjuster is watching and waiting to see what insurers do. If insurers begin owning their own law firms, he says Garwyn could follow suit.

“We wouldn’t want to even think about offering legal services to insurers when they’ve already got their own law firm,” Patterson says. “It wouldn’t work.”

“If they think it’s a good idea that loss adjusting practices and law firms come together more closely, then we would obviously look at it, but I don’t get that sense at the moment.”

Arc Legal Assistance director Frank O’Malley says the firm has no plans to buy a law firm either, adding that Arc is happy to keep using external law firms.

Hiding referral fees?

ABSs also raise the issue of referral fees.

Some industry figures are concerned that if referral fees are banned or reduced under the Jackson Review and Young report, some companies might use ABSs to charge the fees through another channel.

Williams explains: “I think some people are thinking: ‘If I buy a law firm, it’s a good way to hide referral fees. I might lose my referral fee income, I’ll disguise it as some other form of charge within an ABS.’”

Power mad

Motor Accident Solicitors Society chairman John Spencer also flags up the issue. “If claims management companies and insurers are able to take advantage of ABSs, that has very profound consequences for the operation of referral fees,” he says.

Spencer says there is an unfair competition issue if insurers use in-house law firms rather than referring cases to a panel, as an insurer would be able to control the whole claims process for the first time.

Firepower

So it seems the industry is taking a keen interest in ABSs and is weighing up the pros and cons of jumping into the unknown this October.

While buying law firms outright may not be for everybody, ABSs could provide a lot of extra firepower for the firms ready to take the plunge.