Personal injury: Likely to be more law firms facing financial pressures
The divide between the larger personal injury (PI) law firms and many of the smaller ones has grown “even further” in the last year, a new report has found.
“Most of the larger firms have invested in customer-facing online systems to continue to operate with the new small claims regime while many smaller firms will have to make some major decisions, if they have not already done so, on whether they can continue to operate in the RTA claims sector,” said IRN’s Personal Injury Market Trends Report 2021 [1].
At the very least, researchers said, if firms decided to stay in the PI market, “then we can expect a restructuring of many PI teams and more redundancies”.
Despite the pandemic leading to lower claims numbers and longer work in progress due to delays in claims completions, the furlough scheme and government-supported loans have cushioned the blow for some law firms, IRN said.
“When the furlough scheme finishes at the end of September 2021, there are likely to be more PI law firms facing financial pressures.”
Professional indemnity insurance renewal was also on the horizon for many: “The market has been hardening in the last year or so and insurers are likely to be asking more questions this year about the impact of the pandemic on businesses, including financial position and planning, redundancy plans, risk management, any issues around working from home, and evidence that a firm can remain profitable.”
IRN estimated that around 2,600 to 2,800 law firms are active in the PI market in England and Wales, but “both the pandemic and the changes to the small claims limit are likely to encourage further consolidation”.
A panel of 60 law firms surveyed by IRN found signs of “a little more optimism”, with 42% seeing an increase in volumes over the past year compared to 25% in 2020, while 47% of firms expected PI workload to increase in the next 12 months.
At the same time, PI revenue fell for 23% of firms in the past year, the highest figure in the six years the report has been published. The one in six that expected workload to fall in the next year was also a high.
The report predicted “even more emphasis” on adding related services to the core PI claims business, and to bring in-house services that have previously been passed to third parties, such as accident management services, vehicle recovery and repair, replacement vehicle hire, damage assessment, and medical care/rehabilitation services.
“Diversification into new claims areas, which has already begun, will continue. These areas include data breach claims, energy, home cladding and car finance mis-selling claims, claims for consumer products and services, police misconduct claims.
“What is not clear is how large these specific sectors can be and, as more firms move into these markets, competition will intensify and weaken margins.”