Indemnity insurance has stifled sole practitioners – but a new model is shaping the market
The increasing price of professional indemnity insurance (PII) premiums is contributing to a radical shift in the way legal businesses operate in the UK and the future for both legal firms and individual lawyers, according to Adrian Jaggard, CEO of Taylor Rose MW.
The recent PII renewals have had an adverse effect on smaller firms and sole practitioners in particular due to significantly elevated premiums. A recent report from Lexis Nexis revealed that PII has increased by an average of 30 per cent amongst SME firms, with two-thirds of respondents saying the cost of PII was one of the biggest threats to their firm.
Such an increase has, in some cases, meant small and medium-size law firms have been unable to gain access to insurance, leading to their inevitable closure. The accumulation of rising costs and compliance pressures are making life very difficult for SMEs and sole practitioners – who are anecdotally priced higher than their larger competitors with well-established risk, compliance and quality control processes – to continue under the same model any longer. This has contributed to the number of sole practitioners regulated by the SRA dropping by five per cent in the last six months.
So, what is happening to all these solicitors? For many of them, the answer lies in the fast-growing legal consultancy model, which has been boosted by the growing acceptance and desirability of remote working post-coronavirus.
We are seeing many smaller firms and sole practitioners turn to the consultancy model as a way to survive and thrive in this ever-changing industry while still offering the vital local legal expertise that their communities rely on. The legal consultant business model offers lawyers a central service platform, brand, and management infrastructure from which to operate, in return for a percentage of the lawyer’s revenue. The operating structure provides an attractive and viable alternative way of working for experienced lawyers, while also offering increased earnings, a better work-life balance, and a newfound sense of security.
We have seen a huge impact. Our consultancy division has seen its numbers of solicitors more than double in the past year alone. We now work with more than 350 consultants, averaging a current growth rate of between 15-20 per cent per month.
Experienced solicitors no longer want the responsibilities of compliance and increasing operating costs, particularly as insurers become more risk-averse across areas like conveyancing and push up premiums to cover potentially high pay-outs. Yet they can be successful and run their own businesses without the burden of purchasing increasingly costly insurance, or having to face other high initial start-up costs, such as office space, IT infrastructure and legal subscriptions. These advantages leave lawyers time to concentrate on client care and practicing law, as we provide the framework needed to practice.
The pandemic has revaluated the way we live and work – destroying old models and creating new ones – but the need for local and flexible legal advice will always remain. The consultancy model is still very much in its infancy but provides a highly effective solution in a new era. Consultancy allows solicitors to once again feel secure – enjoying multiple benefits, including a referral network, marketing support, a recognised brand, sophisticated IT support and systems, and the removal of the headache of compliance costs such as insurance – while allowing them to continue to do the valuable work that has made them indispensable in their communities.
