Analysis: The claims sector in a post-reform world

At the end of May the Ministry of Justice launched the Official Injury Claim portal, built so that people who suffer minor injuries in road traffic accident can claim compensation, should they so choose, without the assistance of solicitors or claims management firms.

The industry is still working to clarify how claimant representatives will approach the valuation of minor injuries and any aspects not within the set tariff definition that could create friction through a test case.

This, according to Zurich head of liability claims Calum McPhail, will determine how “attractive” it is for claimant firms to be involved on an ongoing basis.

He said: “Whatever valuations levels are determined, this should give clarity and certainty from which point decisions can be made on future engagement and the possibility of further consolidation.”

So far the implementation of the portal has been challenging for many compensators and legal services firms, especially those without IT resources in place.

Donna Richards, CEO of Carpenters Group, said: “Those who have not yet been able to adapt and submit cases using application to application [a manual process] to the portal will be playing catch-up and find it a lengthy process to manually upload – which is a difficult position to be in.”

While consolidation in the claims sector was already happening before the reforms, the increase in small claims track limit to £5000 has “deregulated” the landscape and shifted claimants away from using a lawyer.

Following Davies’ acquisition of Keoghs at the beginning of 2020, many predicted that the legislative changes will drive consolidation in the sector, potentially squeezing out smaller players. This is because without the volume of work to make it viable, the market could become too tough.

While Davies chose the acquisition route, others looked to “rightsize, change, or diversify their business” according to Matt Jarvis, managing director of personal injury services at Slater and Gordon.

National Accident Helpline Group, for example, transitioned from a claims management company into a law firm in March 2021 and First 4 Lawyers launched an ABS law firm trading as First 4 Injury Claims to deal with RTA enquiries post reform in February 2021.

The sector is expected to consolidate further over the next 12 to 18 months, Jarvis pointed out adding that firms that have not made the “right investment” in technology will find it difficult to operate in post reform environment.

Instead of investing in their operating management system they should really “take a step back” and look at what their client, insurer and partner want this technology to look like in order to “really provide an efficient and cost effective service”, Jarvis added.

Portal volumes

Claims submitted to the OIC portal so far show a “high degree of concentration” across a “relatively small number of claimant firms” according to Stacey Goodchild, managing director of motor claims at Davies.

So far 80% of claims submitted through the OIC portal come from claimant solicitors. However, some “well respected” players have not been active so far.

This percentage is dominated by the “top 10 firms” that are responsible for submitting two-thirds of the volume, according to LV claims director Martin Milliner.

He said: “These are larger players with greater IT capability that can automate processing claims through the OIC with little frictional cost, insurer-backed alternative business structures or law firms that have a good channel mix of work including legal expense insurance-backed work.”

While some might still be perfecting their technology and could appear in the OIC portal as soon as they can, some have “lacked the ability to make the necessary investments” and already started to “pull out of the marketplace”, according to Shirley Woolham, Minster Law CEO.

With a thin margin making it difficult for businesses to thrive in the post-reform world, scale is paramount and it can be found through one of two ways: Firms can either service more partners or join with another organisation through mergers or acquisition.

Woolham suggested: “In motor personal injury you might see some merging with organisations that are in other insurance legal services opposition to try and create a more balanced portfolio to spread the risk associated with the margin reduction.”

However just acquiring firms is not the answer, and focus really needs to be on “integrating the customer journey” otherwise they will end up bringing “fragmentation into singular ownership” without really “achieving benefits beyond that”, Woolham pointed out.

Bundled services

In order to integrate the customer journey, some firms might look at offering more services under one roof.

Handl Group launched Handl Engage as a response to the reforms, bringing together six Handl Group companies to provide services across legal expenses insurance, claims handling, credit hire, accident management, expert medical reporting, rehabilitation and arbitration services to support claimants and insurers.

Chris Chatterton, chief commercial officer at Handl Group, said: “Historically you might have had a medical from one company and treatment from another company, we will now look to integrate the medical and treatment together and look to offer other services so that the consumer has to deal with less people.”

Often when making a claim, people do not know who does what for them. Bundled up services could result in faster processing and less hand offs.

Chatterton said: “Both of these things happened, and are happening, more quickly because people just left the market and there’s much less money in it so you’ve got to integrate your services.”

Small firms

Smaller firms leaving the market created more opportunities for bigger firms to innovate. Now there are question marks over their continued existence in a post reform world.

Some smaller firms could still try and make it work in the current environment, however, according to Chatterton the reforms were “designed to make it more difficult” for people to claim and as a result firms will be reluctant to work in motor, in particular personal injury. 

He said: “Reforms have taken out the money that could be made helping to support customers make claims, which means that it’s not a very interesting place for a new business anymore.”

However, insurers and claimant representatives agreed that niche firms could still find their place, as long as they fit around what claimants need. 

While reforms have made it more difficult for smaller players to operate in the sector, they “accelerated a change” that a sector expected would have happened in “three or four years”.  

Chatterton concluded: “Everyone is still trying to work out what the fallout of it all is because it’s been a bit of a surprise and a bit of a shock.”