Several recent news stories indicate that personal injury law firms are not adapting quick enough to the need for new forms of marketing to replace sources of cases lost due to the referral fee ban of April 2013, despite the fact that they have money to invest. These firms could be placing themselves at risk and there is already increased merger and acquisition activity in the sector as firms struggle to adapt.
A problem that recently emerged was the failure of numerous personal injury law firms to find Professional Indemnity Insurance (PII) cover by the relevant deadline. Many of these law firms may ultimately have to cease practise as they will no longer have insurance and therefore will not be able to undertake any reserved legal activities under SRA rules. According to the Solicitors Regulation Authority (SRA), 219 law firms entered the new extended indemnity insurance period (EIP) last month which gives them 30 days to secure backdated cover. Some feel that a contributing factor in some of these cases may have been the difficulty in adapting to the new market dynamics of the PI sector and reduced levels of personal injury business being available from traditional sources.
In the meantime those firms unable to find PII and which cannot negotiate a merger may have to sell their business including their personal injury Work in Progress (WIP) book of active cases. The market has already seen a substantial increase in interest of buyers who are ready to purchase the increasing number of WIP books available however time is of the essence. Ben Holmes writing on Legal Futures points out to law firms that ‘the value of your WIP is a depreciating asset, as the proportion of pre-Jackson files diminishes, so too does the value, and the reality is there is a limited time to sell your caseload.’
So what are law firms doing about the lack of new personal injury business?
It seems the short answer is not much, or certainly not what they should be doing. A survey by Manchester-based Bennet Jones Insolvency has suggested that personal injury law firms are currently sitting on their cash reserves and so are not yet facing financial difficulty. However, the report also indicated that small and medium-sized firms will be at risk if they continue to fail acknowledgment of the changing market and start investing their money in new forms of marketing to replace sources of cases lost due to the referral fee ban.
It’s no doubt true that law firms face difficult decisions trying to decide how to replace lost PI leads with new forms of marketing. Personal injury marketing professionals have recently commented on some of these challenges such as obtaining poor advice from marketing and advertising agencies inexperienced in the extremely competitive PI sector or receiving poor service from ‘the rash of marketing agencies which have emerged claiming to specialise in the legal marketing sector’.
Of course some law firms have opted to pretend nothing has changed or not adapted enough but participation in marketing practices which fall foul of the referral fee ban appears to be a risky option. The MoJ Claims Management Regulation Unit is to be expanded with more enforcement staff and tougher penalties introduced for firms using practices such as unsolicited cold calling, whilst the SRA recently launched investigations into a number of law firms which it suspects of breaching the referral fee ban.
[Editor’s note at Nov 2015]: Check out this PI legal marketing affiliate site here – interesting if you’re looking to sell profitable personal injury leads in a competitive UK market.