New rules affecting the ownership of law firms will transform business models across the insurance sector, according to Deloitte, the business advisory firm.
In its latest Insurance Market Update, Deloitte says changes to rules on ownership of legal firms – known as Alternative Business Structures (ABS) and which allow non-lawyers to control and own law firms - will result in personal injury law firms consolidating and also potentially becoming takeover targets for insurance industry investors including brokers, claims management businesses and private equity firms.
These reforms, combined with the banning of referral fees and Jackson Reforms on personal injury claims, could lead to a fall in the size and number of personal injury claims.
Stephen Ross, insurance partner at Deloitte, said:
“Changes to the ownership of law firms and the planned ban on referral fees are likely to lead to a spate of mergers and acquisitions in the insurance industry. Brokers and claims managers will seek to benefit from alternative business structures, either by building their own legal capability or acquiring that capability. They are also likely to develop models which seek to maximise the downstream claims income such as rehabilitation, medical provision and loss adjusting. For private equity investors there will be a range of opportunities in the insurance market focused on creating integrated claims management businesses through the consolidation of existing players including law firms.
“From an insurer’s perspective, the developments in the market should be positive and over time the quantum and size of personal injury claims should reduce. It is currently unclear whether insurers will seek to buy or build legal practices as the challenges of developing in-house capability or acquisition may be viewed as a non-core activity for many insurers.”
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