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Insurers plan to invest in legal businesses in a bid to cut spending

September 1, 2012

Some of the larger insurance firms are drawing up plans to set up their own legal teams by establishing legal services which are likely to make drastic changes to the legal insurance market.

The information that was highlighted in “The Times” newspaper last week after research conducted by a bank discovered that 50 percent of insurers contacted recently have plans to expand their own teams to deal with disputes, rather than passing work onto law firms. This is supposedly an attempt to reduce costs.

These changes are as a result of provisions established in the Legal Services Act (LSA), which allows other sectors apart from law firms to provide legal services and even to set up their own law firms. It is also possible that investment in law firms currently handling insurance claims may also take place.

The research discovered that other plans to reduce legal spending are being drawn up by insurers, which includes the scrapping of legal panels and sending all of the legal work directly to a single provider at fixed prices which will be at low cost.

Litigation that is related to personal injury, product liability and professional negligence are expected to be 3 of the main areas that insurers expect to operate themselves.

If these facts are actually true, some insurance law firms will be forced out of the market.

At present, the insurance business is worth £5bn annually in fees for UK solicitors, with a substantial amount attributed to personal injury claims.

A major partner of a City insurance business said that many insurers are confronted with huge numbers of personal injury claims and are therefore attempting to bring the personal injury side of things into their own portfolios by administering it themselves.

The research came about after Australian based Slater & Gordon’s, the first publicly listed law firm ever, purchased British specialist personal injury law firm Russell Jones & Walker early this year for nearly £54 m in a Legal Services Act first.

This move illustrated the interest for more consolidations as well as a cue to how insurance firms are thinking of taking advantage of the new opportunities given under the LSA.