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Essay: The changing face of the personal injury lawyer

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  • Subject area(s): Law essays
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  • Published: 8 January 2015*
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  • Words: 2,110 (approx)
  • Number of pages: 9 (approx)

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Once upon a time, personal injury was just another service offered by the traditional law firm, alongside its other private client services. For advice, clients would go to whatever lawyer they usually instructed for their estate planning or property affairs, and those without a lawyer might locate a suitable choice using a local business directory on the basis of the attractiveness of their advertisement. There was little advertising as we know it today or anything in the way of known brands, and so competition in the market was fairly low.
Back then, clients with little means were cared for by legal aid, but those sitting in the middle with moderate means would often find the cost to bring a claim being an issue – especially where the would-be claimant was not able to work. The legal system was also perhaps viewed as less accessible than it is today. Consequently, although there were plenty of potential personal injury claims, not everyone decided to take things forward and so the personal injury market was not lucrative for new entrants.

No win no fee

The no-win-no-fee model without doubt improved access to justice. The cost barriers to bringing a claim vanished, and unsurprisingly, the personal injury sector grew quickly. The huge number of claims coupled with the the economic attractiveness of the industry attracted new players. Whilst in the past only the traditional law firms could compete, the legal reforms started to remove barriers to entry – first permitting claims management companies and later alternative business structures to enter the scene. By then effectively the barriers to entry had dissipated and the sheer number competing for business had grown – and continued growing – at an exponential rate. The old model of using your local high street lawyer changed to a national model, with lawyers happier travelling long distances to visit injured clients in the comfort of their homes.
With the traditional law firms stuck with expensive staff overheads and long leases often on city centre properties, the new players with their different business models had the option of setting up shop elsewhere, in cheap out-of-town business parks that enabled them to keep costs low. Work could be carried out through the Internet and over the phone, making a high-street shop front unnecessary. Cheaper staffing options such as the use of paralegals and even legal process outsourcing firms for more routine work enabled costs to be driven down further.

Claims Management Companies

One of the biggest driving forces behind the increase in claims was the effect of claims management companies entering the market. To be able to compete nationally, law firm had to have the budget to finance TV advertising and manage the work that would result from it. Claims management companies were the solution to this, creating a few public-facing brands that collected leads via national advertising and distributed them to hundreds of local firms for a referral fee. Of course, with stiff competition,  advertising tactics were aggressive. Sometimes these were even invasive, such as bombarding people with text messages and cold calling, either by the claims management companies themselves or by offshore companies providing cheap marketing facilities. These practices were banned – but the bans were ignored.

Alternative Business Structures

Alternative Business Structures drove further growth in the market with applications being accepted by the SRA from Jan 2012 onwards. These allowed partnership with (sometimes very well funded) non-lawyers and permitting well known and trusted businesses such as the Co-op to simply added another string to their bow – with no household names in the sector, it was easy for them to move in and start winning a share of the business. Indeed, trust plays a huge part in the choice of lawyer for a client, since the no-win-no-fee model means that price is not a factor when it comes to appointing a lawyer. Instead, experience and trust, coupled with factors such as reputation counted, and this is why established names like the Co-op have found it easy to get a foot in the door.

Settling claims early

Overwhelmed by the number and cost of claims they were seeing resulting from aggressive advertising tactics and an expanding market, insurance companies developed a habit of settling claims directly with the injured party, thus cutting out the middle man. This process of trying to bring the case to a close as quickly as possible made little financial sense however, since the result was that medical reports weren’t always obtained, and had they been, perhaps no payout would have been necessary since current advertising often encouraged opportunistic claimers who hadn’t really suffered a personal injury or were happy to lie or grossly exaggerate the extent of their injuries in order to claim compensation. Early settlement was not good for the Claimant many cases either, since they were not well placed to judge whether the settlement figure was fair or not, and many would have received less than they would have got if they had otherwise continued through the proper channels.

Fixed fees for fast track

In a market without price sensitivity, there is no reason for restraint in growth, and over time the percentage increase in personal injury claims exceeded the percentage increase in accidents. The insurance industry strained with the increased cost burden, struggling to keep premiums affordable with the increase in number of claims. Then, policy makers stepped in, focusing on those claims that made up about 70% of the total – low value road traffic accident claims. Fixed fees were imposed in the fast track, hitting the profitability of the market.
The fixed fee did allow firms to make a decent profit on the work, although this was far easier for larger firms. Fixed fees meant that firms could only impact their profits through settling more cases, shrinking their overheads and reducing the time spent on each case. Careful streamlining, efficiencies and a focus on volume was necessary to make the model work.

Jackson reforms

Despite the introduction of fixed fees for fast track cases, the would-be claimant had little interest in the lawyer’s final fee and still the market had no price sensitivity. Thus further measures were needed and this came in the form of giving the ‘customer’ more of a financial interest. From April 2013 onwards, claimants have had to pay the success fee and the premium for after the event insurance. Although it is still the case that money is not required up front (and so access to justice is largely not impacted as such), the effect is that the amount the Claimant receives in compensation is reduced. The thinking here is that the Claimant will shop around for the best deal and this adds some price sensitivity back into the market.
Perhaps the injured claimant is not the best person to be conducting this exercise, with their priorities following an accident set quite differently. Emotions and stress from the pressure of not being able to work naturally will affect their ability to negotiate. It does seem like the changes have encouraged some of the desired ‘shopping around’ effect, with enquiries now more difficult to convert than before the April 2013 changes. But it seems that expertise and trust are still more prominent factors in choosing a personal injury lawyer, as they should be.

Banning referral fees

Of course, choosing a lawyer to help with a personal injury case is not the same as choosing a lawyer to draft your will, or to help you sell your house. For these relatively straightforward transactions, you might do some research on Google, or perhaps ask friends for a recommendation. For personal injury cases, more often would-be claimants instruct the first lawyer they call up. In fact, in many cases, they don’t even have to look for a lawyer, since they get a call from their insurer’s panel lawyer who will have instigated the claim on their behalf. Once a lawyer had been referred the case, a would-be claimant was extremely unlikely to move it to another firm. Hence referral fees, when they were allowed, did so well because when a lawyer got a referral, the conversion rates were extremely high.
As part of the Jackson reforms, to strip cost out of the system, to curb the “compensation culture” that had developed, and in order to control the almost automatic conversion of an injury to a claim, referral fees were banned by the government from 1st April 2013. The banning of referral fees hit a lot of small firms hard, leaving them with few options: to reinvent themselves, to pull out of the industry or to be sold. The changes were meant  to improve price sensitivity, reduce costs and hopefully reduce demand, and it was thought that banning referral fees left a pot of money available for each fast track or portal case that would not now need to be spent. The reality was that it left little or no money for marketing in order to attract new clients, a necessity without the referrals as a source of new business.
The fee on the table for the work had reached the point where profitability was no longer realistic for small firms – and it was only viable for the large, volume organisations.

The Jackson reforms summarised

So the effects of the Jackson reforms have been as follows:

  • A good number of firms were put up for sale.
  • A market for buying and selling work in progress sprung up.
  • Many firms simply couldn’t acquire new work without referrals and there were several high profile failures.
  • There were a good number of takeovers and mergers which established large firms.
  • Only the biggest firms are now able to sustain marketing on a national scale.
  • Brand has become more crucial than ever before.
  • The market is now full of big players rather than hundreds of small organisations.
  • There are huge barriers to new entrants who will need a strong brand and capital behind them to launch a business with appropriate economies of scale.
  • Differentiation has become more important than ever.
  • Advertising has become more relaxed and less aggressive, now focusing on helping the victim rather than on the compensation they might receive.
  • Smaller firms have had to focus on more high-value work and turn away fast-track work as they cannot make them profitable.
  • Firms are more likely to turn away clients that might have had a case prior to the reforms, either because their case would not be profitable or would be too risky financially. Some claims seem deserving but fail the new proportionality test.
  • The market is now divided into large players, retailers, Alternative Business Structures and small more specialist firms.

Those firms specialising in very niche areas have been hit less hard by the reforms. Often these firms acquired their business through their reputation in their particular field rather than through referral fees and so were not so heavily impacted, although not immune to the reforms altogether. With success fees being capped, this has an impact on both turnover and profitability for all, and changes to how the after the event premium operates requires a more careful risk assessment of cases to ensure that no work is done where a fee is unlikely to be recovered.

Marketing personal injury today

Over the last couple of years, we have seen a fall in the number of claims, although the number of players continues to grow. Going forwards, it is likely we will see the big players continue to fight for a share in the market, with brand being everything. Alternative business structures have meant that already established household names can step into the market and this makes entry to the market very unattractive for anyone who doesn’t already have the brand and financial backing. Differentiation will be key, and lawyers will need to make it clear to would-be claimants why they will fare better if supported by a lawyer and why ultimately it should be you that they choose. Factors that help a firm to stand out will be:

  • Reputation
  • Level of client care offered
  • Local knowledge
  • Availability out-of-hours
  • Accreditation and accolades of the individual lawyers and the firm
  • Expertise and quality to ensure the best outcomes
  • The personality/chemistry of individual lawyers at the firm who themselves can be brands
  • The geographical location of the business
  • Ease of contact for the client.

Because of the low fees and necessity for economies of scale, low value work is unlikely to be done by small high street firms going forward. This will be handled by the volume providers, and the small niche firms are likely to continue carving out their market share with the more serious high end or specialist claims.

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