Global FINEX – Professional Liability Insurance Risk Outlook 2021-2022

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Risk Outlook 2021-2022: Challenges and Opportunities for Law Firms post-lockdown emerging from the pandemic.

This article examines the main challenges and opportunities which the SRA classifies as:-

  • The current state of the market
  • Forces of change which include:-

The current state of the market

Due to lockdown restrictions, many law firms have adopted new work practices in response to the pandemic, which has led many companies to operate a hybrid work structure – a mixture of working in the physical office and distance. These changes have resulted in an increased reliance on technology and online services, with 44% of legal services being delivered online, including virtual hearings and witnessed wills.

The foreclosure has also brought about a change in business structures, with law firms looking to consolidate, particularly conveyancing and personal injury practices. There has been a reduction in the number of independent practitioner firms and partnerships, with a shift from limited liability company structure to limited liability companies. There has been an increase in law firms expressing interest in floating on the London Stock Exchange, a significant change from the traditional law firm structure.

During the lockdown restrictions, the legal profession responded with resilience and contributed £59.9 billion to the UK economy, despite the profession facing challenges from a difficult professional liability insurance (PII) market , which has been a concern especially for small law firms. The cost of PII is unlikely to drop any time soon and there are fears that the low market costs seen before the pandemic could return even once the economy recovers. PII’s terms are being reviewed by the Legal Services Commission to understand how the market works and what this means for the legal profession and its clients.

Economic factors

Over the past two years, the UK economy has been affected by two significant factors, namely the pandemic and Brexit, and economic growth has fluctuated. While we saw the economy recover when lockdown restrictions were lifted last summer, that recovery is now slowing. The Office for National Statistics has identified that Britain’s recovery rate is slower than that of other G7 countries.

Law firms can be impacted by an uncertain economic climate as they must adapt to manage the uncertainty to ensure they can meet the needs of their clients, especially vulnerable clients, as well as manage the ability of their clients to pay for legal services. Clients facing financial difficulties may need employment or housing advice or business clients may need legal advice regarding employment issues, contracts for the supply of goods and debt collection. Meeting the needs of their clients in an affordable and efficient manner is a crucial challenge for the legal profession.

Political and regulatory factors

The Government is seeking to reform existing regulations by increasing the use of digital services with a view to improving the functioning of justice and providing greater transparency, efficiency, consistency and expanding access to justice .

The Land Registry is in the process of creating a centralized digital registry of land encumbrances and is seeking to digitize the identity verification process which aims to complement and support the Land Registry’s online transfer process. In addition, a centralized register of judicial decisions is being developed in order to improve transparency and facilitate access to all judicial decisions.

The dispute resolution process is evolving, with the Department of Justice encouraging the profession to use alternative dispute resolution (ADR) methods, such as the new claims portal for personal injury claims resulting from motor vehicle accidents and the proposed digital triage portal to be used. for all civil claims, which aims to direct claimants to the most appropriate online resolution service for their case. Law firms may see increased competition from unregulated ADR providers, particularly for lower value claims, and should be prepared for this.

We hope that these digital advancements will increase the efficiency and accessibility of legal services and can help speed up processes that can often be considered too time-consuming, such as the conveyancing process and litigation. However, there are concerns that this will limit legal services to those who cannot access online services. Additionally, when introducing new technologies, there is a need to ensure compliance with required data protection legislation, protect information from data breaches, and manage threats from cybercriminals.

Drivers of Consumer Behavior

Consumer awareness of social movements such as Black Lives Matters, #Metoo and concerns over climate change are likely to impact law firms as they face increased political pressure around these issues and the need to convince their clients that they are acting ethically.

Research by Ofcom found that around 6% of households in the UK are not online. While there has been a shift towards people who rely heavily on online services, for those who do not have access there is a risk that these people will be seen as vulnerable with a greater need for legal assistance. affordable, but cannot benefit from these online services and may feel digitally excluded.

Meeting consumer legal needs in an affordable and effective manner is a growing challenge facing the legal profession, particularly with the continued decline of legal aid, with only 3% of legal services funded by legal aid in 2021, compared to 8% in 2014. This will have an impact on the most vulnerable. those most in need of legal assistance, particularly in areas of practice such as welfare, immigration and debt collection litigation.

Drivers of firm and market behavior

The biggest change impacting the profession during the pandemic has been the increase in the use of technology to support, complement or replace traditional methods used to deliver legal services, as outlined in the Principles report of Technology and Ethics published July 20213. With advances in technology, many law firms are looking for innovative ways to manage their workload and assist their clients. Advances in technology are expected to increase efficiency, productivity and growth while reducing costs and benefit clients by allowing lawyers to work more flexibly, better manage client expectations and achieve better results for their clients. clients. However, law firms will need to protect themselves from the risks of operating an increased digitized service by being aware of cybersecurity risks and ensuring compliance with their regulatory and legislative obligations to effectively manage those risks.

Many law firms have chosen to operate a hybrid working structure following the pandemic. While some law firms may return to their municipal premises, it is expected that working from home and the provision of legal services online will continue and could become the new normal.

Conclusion

We have seen the legal profession show real resilience in the face of the challenges imposed by the pandemic. With change comes opportunity, and law firms able to adapt quickly to a rapidly changing environment in the way they provide legal services should benefit and even thrive from the current challenges facing the legal profession.

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