New research has highlighted how ineffective qualified one-way costs-shifting (QOCS) has been in suppressing the need for after-the-event (ATE) insurance, with 90% of firms still advising every client of its availability.
The poll of over 500 managing partners found that one in six firms arrange an ATE policy for every client, though the majority (61%) operate a business model where ATE is arranged only if the client specifically requests it or if the firm considers it to be necessary based on the firm’s own assessment of the case. Some 5% never arrange an ATE policy.
The survey, conducted by Liverpool-based O’Connors – which specialises in acting for other law firms – revealed that just over one in ten recommended a policy only when there has been a material increase in the client’s exposure to an adverse costs order, such as the receipt of a part 36 offer or new witness evidence coming to light, arguably leaving clients at risk of not being able to get cover at all or only at a significant premium.
Of the clients who decline their law firm’s recommendation to take out ATE, 53% tell their law firm they are prepared to take the risk and 31% that they feel the premium is too high. O’Connors said this premium resistance is “perhaps reflective of the 41% of managing partners who said that in their opinion ATE insurance premiums now being charged in the market do not fairly reflect the client’s risk exposures, compared to 24% who said they do”.
Law firms ranked premium pricing and extent of cover most highly in their choice of ATE insurance provider, with ATE expertise, ease of doing business and insurer security close behind. Most firms (95%) accessed ATE policies direct from an insurer with only 12% ever using an insurance broker. Just over a third (35%) of firms use just one insurer, with the majority (59%) having two and 6% three or more.
Less than a quarter (23%) of respondents said their law firm’s client proposition is to provide clients with a contractual indemnity for their adverse costs risk; 65% said they never do this. Providing such a contractual indemnity can have an impact on a firm’s balance sheet and ultimately its financial stability, O’Connors said.
The charging model of personal injury law firms was quite diverse. The largest proportion of respondents (47%) charged a percentage of damages plus ATE premiums and disbursements; 27% charged a percentage of damages including ATE premiums and disbursement, and the rest a number of different charging structures to suit each client.
O’Connors partner Nigel Wallis said: “These results show the diversity of business models in the market and the lengths to which law firms go to ensure that they act in their client’s best interests.
“In order to survive, the ATE insurance market has to remain responsive to the needs of firms and their clients and things are likely to remain very fluid as the full impact of the reforms starts to bite.
“From our own experience of advising many law firms, we see an increasing number of management teams seizing new market opportunities and developing innovative business models that are client centred and, one hopes, financially successful.”