The average annual growth rate for investment in UK lawtech companies over the past three years has hit 101%, a much bigger number than that seen in sectors such as finance or health, a report has found.
However, the report by LawtechUK said law firms themselves lagged behind other sectors in the amount they invested in research and development, and there was “still a critical lack of digital skills”.
In Shaping the future of law, Lawtech UK said the average annual rate of growth for investment in UK lawtech companies between 2017 and 2020 was 101%.
This was “considerably higher” than areas such as fintech (20%), healthtech (50%) or climate tech (5%), “demonstrating lawtech as a sector on an accelerating trajectory as the market also matures and consolidates”.
The approximate 200 UK lawtech companies attracted a total of £674m of private investment up to the end of 2020 and employed 7,100 people.
The report anticipated that they could see up to £2.2bn in investment per year by 2026, as well as contributing up to 12,500 jobs over the same period, generating a gross value added (GVA) of £1bn (£1.5bn by 2026) and around 5% of the GVA of UK legal services – a similar ratio to the current UK fintech and financial services industry GVA of around 6%.
The fastest growing areas within lawtech were regulatory and compliance, growing by 214% in the last three years, consumer and SME lawtech services (74%) and legal document creation, management and review (24%).
The report estimated the “market opportunity” for lawtech at up to £22bn annually.
This was made up of £11.4bn in unmet demand from SMEs and consumers in the UK, cost savings for SMEs using lawtech products and services of up to £8.6bn, and productivity gains for legal service providers of £1.7bn.
However, the report found that while average investment in research and development across all business sectors was 5% or more of revenue, “few legal businesses target as much as 1%”.
It said: “The legal sector has been one of the slowest to evolve, without a burning platform or external pressure to change and with a range of sector-specific barriers impacting the adoption of technology. But it has now reached an inflection point.”
The move to remote working has prepared the law for “genuine digital transformation”.
The report went on: “Legal businesses, in-house legal teams and regulators are focused on technology, as never before. Tech and data capability are board level priorities, no longer sidelined as nice-to-have.”
However, there was “still a critical lack of digital skills” and a need to “re-evaluate” legal education for people entering the profession and for professional development.
“Legal education is traditionally about how to ‘do law’ and does not cover business or technology skills.
“Legal professionals themselves now identify the need to receive training in data analytics, innovation techniques, design thinking, legal and ethical issues raised by the use of technology, and business-specific technology applications.”
The report also called for improvements in data collection and access in the legal sector, with a “collective effort from organisations, government and regulators” needed to establish common approaches, governance and standards.
LawtechUK is a collaborative initiative by growth platform Tech Nation, the Lawtech Delivery Panel and the Ministry of Justice.
Jenifer Swallow, LawtechUK director at Tech Nation, said lawtech was seeing “incredible growth” and building on that growth and “working collaboratively across the sector, we can realise the full strategic opportunity of lawtech on an accelerated timeline, and deliver results no one organisation could achieve alone”.
She added: “The £22bn market opportunity of lawtech evidenced in this report only scratches the surface of the true impact we can have through digital transformation in law.”