Applying for funding and ATE need not be so painful


Posted by Tets Ishikawa, director at Acasta Europe and senior advisor to Sparkle Capital, both Litigation Futures Associates

Ishikawa: Expectation management vital

Since Sparkle Capital started funding cases in 2014, direct litigant enquiries have steadily been on the up. This no surprise, really, given how the number of active funders and the depth of capital they all seek to deploy has exponentially increased.

General awareness has also grown, driving small and large corporates, as well as individuals, to explore litigation funding (and by extension, after-the-event (ATE) insurance) as a financial instrument that can add real commercial value to a business.

Arguably, direct approaches may be accentuated for funders like Sparkle Capital, which look at the small-to-mid value claims that fall below the radar of most mainstream funders, and act as a one-stop shop through its ability to offer ATE through Acasta.

But it says a lot when litigants make direct approaches. On some level, they are clearly not being attracted by the solicitor firms that proactively seek their custom. And if they have a solicitor instructed, it says even more that they would make a direct approach instead of instructing their solicitor to do so.

Not that we want them to. We have developed good working relationships with a large number of law firms over the years, often enhanced by a broker who helps smooth the process considerably.

And through that, we gain huge operational efficiencies which are just as much a critical component of a successful business as the underlying revenue generators.

There is, however, something much deeper driving this trend. Litigants looking for litigation funding are in fact no different to companies looking for commercial real estate finance, a factoring line or asset financing, or individuals looking for a residential mortgage or a car finance deal.

Seemingly swimming in a sea of options, the common thread is that in each instance, the borrower believes procuring the finance will be a painful, tedious and resource-consuming (or soul-sapping) application process.

Other markets, though, are evolving in the phenomenon that is fintech. In residential mortgages, Habito and Trussle are just two of the online digital brokers that are making the application for residential mortgages swift and as painless as possible.

Even in insurance, price comparison websites are being joined by a wave of insuretech companies that are delivering real operational efficiencies for insurers and removing some of the pain from policyholders.

The litigation funding and ATE insurance market is lagging badly. While legaltech is its own bubble, very little of this bubble is in relation to any technology or platform that helps ease the application process for litigation funding and ATE insurance.

The most eagle-eyed tech-lovers in the legal industry may have spotted disputed.io. I have met two others developing similar systems. But the real issue is not the technology – but the infantile nature of the market.

Direct litigants have, either from previous experience or by word of mouth, heard largely negative feedback about the application process offered by funders and insurers.

Putting aside the natural bias each litigant has about the strength of their case, the most common groans are the sheer length of time the process takes, followed by the lack of feedback, the constant juggling from one credit or investment committee to the next and the sheer inefficiency and volume of the paperwork.

This isn’t helped by the fact that few funders have any patient capital – or put another way, they have investors pressuring them to deploy funds, which means they can’t just say a quick no to obviously ‘dud’ applications at the risk of having a very thin pipeline to show their demanding investors.

Deeper than that is that most litigation lawyers only have the archaically slow and inefficient judicial system as their benchmark, and have not lived or breathed the speed, efficiency and timing that are in fact ingrained in the broader commercial world.

It doesn’t get much better with some insurers. Acasta is well known for aiming to revert back on every claim within 72 hours. We’re not perfect – yes, we sometimes miss that target – but we will then at least communicate when we do miss it.

Others though are known for taking a lot longer. As a case in point, we recently had to wait seven months to incept an ATE policy that covered a discrete risk in a litigation case because the main ATE insurer, which had already offered a policy to cover the balance of the risk, needed to get approval which ultimately entailed a simple ‘yes’.

If there was an equivalent quality of life index for the application process for all kinds of finance, litigation funding and ATE would be rooted firmly at the bottom. Clearly, no will or money in the world is going to take it to the top of the table any time soon.

But, at the same time, the only way is up and there isn’t much the industry needs to do to improve significantly.

For a start, communication needs to improve. Considering most underwriters are lawyers who by training say only what is necessary, their mindset needs to become more aligned with the commercial world, where feedback, expectation management and general business etiquette is maintained during the application process.

Response times can also improve. Gasps of disbelief always greet our intent to revert within 72 hours, perhaps the only unknown being whether the gasp is in reaction to how short the 72-hour time frame is, or because we commit to a timeframe at all.

The fact that we miss the target sometimes is not what litigants remember. They remember the fact that we actually tried to deliver a service without the perceived ‘lawyer-cum-funder’ arrogance.

And, most importantly, the use of expectation management. Funders desperate for business promise the world to litigants. But as funders grow and disclosure of performance increases, it’s not hard to find publicly available information where funders champion their selection criteria such that they only ever accept a miniscule percentage of cases they ever assess.

It’s unfortunate then that funders fail to explain the statistical probability to litigants that their cases will eventually be funded.

And what’s in it for funders and insurers? Simple really. It will help develop and grow the market, in turn creating more of the very opportunities most funders and insurers crave.

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