The Civil Liability Act reforms will lead to a sharp contraction in the claimant personal injury (PI) market, with firm closures and staff redundancies, according to a survey of solicitors.
It showed that the changing PI market is already having a negative impact, with 42% saying their firm had seen profit decrease over the past year (it had increased for 30%), while 46% said cashflow had worsened and 40% had seen staff numbers reduce.
Almost half said the cost of doing business had increased.
First4Lawyers’ annual state of the market survey, to which 109 solicitors responded, found that though a significant minority expected these trends to continue over the next year, only 13% of respondents believed the reforms would lead to their firm closing.
Some 41% said they would have some impact, but their firm was sufficiently diversified to cope, while 21% said the lower small claims limit for non-RTA cases would allow them to adapt and survive.
All solicitors anticipated redundancies across the sector over the next 18 months, with most expecting plenty of mergers and WIP sales too, while the cost of marketing for non-RTA work would rise too.
After the reforms come into force in April 2020, 61% foresaw a huge cull of law firms, leaving a small number of big practices, while many expect a new breed of claims management company (CMC) to become the dominant handler of low-value work.
A fifth (21%) said the profession would find a way to handle small claims, but two-thirds thought insurers would then start pushing for yet more reform.
Asked how they expected claimants to react to the new regime, 59% predicted that they would turn to CMCs, while half thought they would either not bother claiming for smaller sums or insurers would pressure them into under-settling.
Those respondents whose firms handled clinical negligence work indicated that the last year had been tough for them too, although not as bad as for their PI colleagues.
However, most expected their caseloads, turnover, profit, cashflow, staff numbers and investment in marketing to stay the same or increase over the next 12 months.
There was a widespread expectation that the outcome of the Civil Justice Council-led process to agree fixed fees for claims worth up to £25,000 would not be beneficial for either claimants or their lawyers, but it was still better than leaving it to the Department of Health.
Qamar Anwar, managing director of First4Lawyers, says: “Our findings paint a picture of a market in great flux. With just under a year to go until the reforms come into force, firms still have time to decide how they are going to face the future and adapt to meet the challenge.
“In the short term, the deadline has already produced greater competition for work, adding greater pressure to the PI market in recent months as firms look to make the best of the current regime.
“The overall message is that the claimant legal sector needs to plan how they are going to tackle this year and those to come in the future. The reality is that many claimants will still need and want their help, and we know that solicitors are looking at ways of delivering this in an efficient and effective way.
“Ultimately, it will be in the public interest for the profession to continue to help injured people and ensure that insurance companies do not take advantage of them under the new unequal regime.”