As insurance companies look to form alternative business structures (ABSs), the traditional legal sector can no longer just raise an eyebrow – we need to take a much more serious look at the practicalities and ethicalities involved.
To begin, here is the Law Society’s definition of an ABS:
“An ABS is a firm where a non-lawyer:
- is a manager of the firm, or
- has an ownership-type interest in the firm.
A firm may also be an ABS where another body:
- is a manager of the firm, or
- has an ownership-type interest in the firm and at least 10 per cent of that body is controlled by non-lawyers.
A non-lawyer is a person who is not authorised under the Legal Services Act 2007 to carry out reserved legal activities.”
Purists will argue that placing insurers anywhere near the helm of a public-serving legal practice can only have a negative impact on the culture of the organisation, and ultimately, the level of service provided. And they would have a point.
A pause for positivity
Now, it is worth mentioning that since ABS licences started being handed out on 6 October 2011, we have experienced a positive ripple or two…
For example, a non-profit ABS was formed in April 2012 to provide people with quality legal advice, at an affordable rate. The date of its incorporation was particularly apt, as it was that same month when legal aid eligibility saw substantial reduction – through implementation of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO).
More charitable organisations have applied for ABS status and their intentions are healthy – they put the individual first, which is also a fundamental principle of solicitors conduct in respect of their clients.
A wave of potential damage
Still such ripples of positivity do little to outweigh the waves of damage that giant ABSs could wash over our legal system – particular in cases when the claimant’s rights can be jeopardised by the business structure.
For example, Direct Line has applied for ABS status to the Solicitors Regulation Authority (SRA) and plans to form an entirely new practice, branded ‘DLG Legal Services’.
To me, this particular example raises a potential conflict of interest and that concern is mirrored in any other insurance/legal ABS setup.
The Direct Line Group owns Direct Line, Churchill and Privilege (multiple insurance arms). Whilst specific conflict issues can be dealt with dealt with by separate representation, there are broader market concerns when an insurer has a huge share of the motor insurance market, which the Direct Line Group does. The concern is how these broader market concerns, of enormous financial significance, are balanced against an individual claimant’s interest which may lie in an equal and opposite direction.
If an insurance firm owns and controls a legal practice, then it can manage the entire claims process. So, instead of benefiting only from the payment of a referral fee, which is banned, the insurer now benefits from all the fees to be earned by a solicitor in respect of pursuing a claim. How is that an improvement in the position before referral fees were banned? Surely it exacerbates the situation rather than improves it?
Where do you stand?
I have no specific criticism against Direct Line; in fact I believe it to be a very reputable institution – my argument remains against ABSs in general. However, when a corporation as massive as Direct Line gets involved, my concerns about the ethicality and practicality of an insurer/solicitor ABS model are greatly heightened.
There are likely to be strong arguments from both sides on this and, if we truly have the client’s best interest at heart, we ought to look at the ethicalities and practicalities of ABSs from every possible angle.
John Spencer is director of Spencers Solicitors, who are specialists in personal injury compensation claims. He is a former chairman of the Motor Accident Solicitors Society (MASS) and a Law Society personal injury panel member.