Monday, 22 April 2013

The ABS Regime: who watches the watchmen?

The Alternative Business Structure (ABS) regime has been with us for a while now. First proposed by Sir David Clementi in 2006, ABSs became possible at the beginning of January last year. It was then that the Solicitors Regulation Authority (SRA) began accepting applications for ABS status.

A year later, the SRA announced that 454 firms had applied for ABS status. In a press release dated 11 January, it stated that "some 117 firms have completed the submission of all necessary information and 74 licences have been granted ... a further 19 [are] close to completion."

ABSs on the rise

No doubt the numbers have increased over the past few months. No doubt, too, that this will please the government. It has long trumpeted ABSs as a force for good and a means of driving "greater efficiency", especially in criminal legal aid. Speaking about this sector, the Lord Chancellor, Chris Grayling, recently declared, as reported by Legal Futures, that "we are proposing a model of competitive tendering, where solicitors’ firms must compete to offer the best price they can for work in their local area. This will mean successful firms expanding or joining together, to achieve economies of scale which can be passed onto the taxpayer in savings to the public purse."

Consolidation is the name of the game

Consolidation, motivated by the desire to save £220m from the legal aid budget, is the name of the game, as heralded by Jack Straw in a speech in March 2009. Inevitably this will change the legal landscape as we know it - though I will add that the advent of so-called 'Tesco law' is far from universally applauded - I continue to have a major concern about ABSs and their impact on the personal injury arena. In a nutshell: they could serve as a way round the Ministry of Justice's ban on referral fees.

As I've said before, ABSs are Trojan horses in the battle against referral fees. They enable insurers and claims management companies to own and invest in law firms, thereby circumventing the laudable effort to rid us of referral fees and what the government condemns as 'compensation culture' (though this is, as none other than the Master of the Rolls, Lord Dyson, recently observed, a perceived compensation culture, not an actual one). When insurers and claims management companies can own and invest in law firms, they can handle PI claims from start to finish. They will therefore control the whole process. The raft of ancillary fees paid by those outside the legal profession, the likes of garages, reporting engineers, towing companies and trade unions, can just continue in another guise.

Moreover, I have recently encountered conduct that shows just how ethically suspect some insurers can be – and how their own behaviour is what fuels our 'compensation culture'.

Quis custodiet ipsos custodes?

Recently a colleague of mine was involved in a road traffic accident. The other driver opened their car door into the side of her as she drove past.  Doing so made quite a mess of the front wing of the car and my colleague was understandably shaken up.

The other driver's insurer made contact with my colleague within 24 hours. Remarkably, despite her not even mentioning any injury whatsoever, the insurer made her a pre-medical offer of £2,000. My colleague did not provide any response to the offer as she was more interested in ensuring that she had use of another vehicle.  The next day the insurer called to increase the offer to £2,400, and also make an offer for her son of £1,500.

My colleague was unlikely to have made a claim at all. And yet she finds herself offered nearly £4,000 in PI compensation.

Who, then, is really fuelling the so-called 'compensation culture'? Surely it couldn't be the insurance industry? Could it?

(For those who don't know their Latin, I'm no expert either. But 'Quis custodiet ipsos custodes?' means 'Who watches the watchmen?' It seems appropriate here.)