Now that the LASPO changes have been introduced and the market adjusts to the new regime the minds of legal expenses insurers are beginning to focus on the run-off scenario for After the Event insurance. The huge increases in the number of cases underwritten by LEI’s in the run up to 1st April have no doubt improved the look of the GWP book, but the eventual price could be a high one unless insurers take active risk control measures to prevent an increased loss ratio caused by cases lacking genuine and reasonable prospects of success. When considered alongside the issue of premium recovery accountability, the factors determining a healthy run-off become ever clearer.
Our experience at LAS paints a potentially worrying picture for insurers. A recent audit of a major personal injury law firm revealed the failure to account to the ATE insurer for a 6 figure sum of premium recoveries over a two year period. Our 2012 audit of a large practice showed a similar sum owing in respect of premiums recovered through miss-selling based claims. We are sufficiently confident of our ability to identify the failure of law firms to fully account for premiums recovered that we operate on a percentage of recovery basis. This cost-free service is proving very attractive for insurers seeking to optimise premium income, particularly where post-LASPO the relationship with the law firm is perhaps not as strong as it once was. These audits can be done remotely or via a physical visit.
The auditing of claims against technical handling criteria is normally undertaken on-site which provides the added advantage of enabling an assessment to be made regarding the efficacy of the firm’s supervisory structure, compliance regime and risk management culture. Against this background LAS are able to provide case-specific template reports containing key data, timelines and an independent assessment of Prospects of Success.
Recent live file audits have been conducted at firms specialising in Motor, Employer’s and Public Liability claims and Industrial Disease, Noise Induced Hearing Loss and Contract Law disputes. In general we recommend corrective action in c20% of the claims audited, having identified key factors that have been overlooked or steps that need to be taken. Examples include the failure to obtain available Police Reports, not acting in accordance with a supervisor’s instructions, failing to follow Counsel’s Advice, unacceptable delays in progressing matters, not communicating Part 36 Offers to insurers or clients and failing to contact independent witnesses. In an additional 13% of cases we recommend that the insurer withdraw cover due to a determinable lack of prospects which have been put to one side by a lawyer too busy to fully stay on top of matters. These concerns are more prevalent in medium/large practices where a high turnover of Fee Earners and supervisors, coupled with unmanageable caseloads, lead to a fall in standards.
As the market compresses in light of the LASPO changes, and previously strong business relationships come under increasing pressure, a greater prevalence of similar concerns is almost inevitable. Our advice is simple – manage the run-off before it runs away with you!
Dave Massey – Director, Legal Auditing Services (LAS) , Bristol