by Andrew Sherwin*
ABS puts the legal and insurance sectors on a collision course for convergence. So should you hit the brakes or harness an accelerating business and technology revolution?
Since Alternative Business Structures (ABS) first entered the market, it is fair to say the concept of so-called ‘Tesco Law’ has divided opinion. After a slow start since The Solicitors Regulation Authority (SRA) first began accepting ABS applications in January 2012, at time of writing, 454 UK firms had started the process. Some 117 firms had submitted all the necessary information and 74 licenses have so far been granted with a further 19 imminent.
ABS allows those companies not exclusively law based to provide legal and other services to clients. Any ‘fit and proper’ company can apply and despite some reservations, the ABS model offers the legal and insurance markets innovative and new ways of working. Ways that have long been popular and successful in the US are now finding their way across the pond. While not everyone is convinced, the increased flexibility afforded by ABS is already becoming apparent and as soon as the advantages are better understood by the insurance and legal markets, the two are likely to continue on their uneasy path to virtual convergence, perhaps ultimately creating one all-encompassing ‘super sector’. Legal firms who have not grasped this need to wake up and smell the coffee before it’s too late. If you don’t consider Insurance companies as ‘the competition’, or even to be operating in your space, then recent announcements by Direct Line, Admiral and Ageas should put paid to anyone still thinking the Legal sector can live in its own comfortable little silo.
At Aquarium we have a lot of experience in dealing with the insurance markets both here and in the US and while firms have been (perhaps understandably) quick to pick up on the ABS advantages, the legal sector’s more natural cautiousness has been apparent. Many big players in both camps are looking to see how the market develops and let others face the ‘teething troubles’ that have been reported in the application process for example (criticised as cumbersome and stringent) before dipping a toe in these unfamiliar waters. So what are the issues being considered?
I’m a solicitor, you know?
The common and unfortunate refrain from some sectors of the legal market goes along the lines that ‘I am a practicing solicitor, not a businessman’, as ABS is seen to imply. Yet like it or not, the days of being able to deal with client matters in isolation is rapidly receding into the background. Replacing this simpler world are customers, subsidiaries, investors, directors and stakeholders. You are no longer just a solicitor but a business development opportunity. While daunting, the sky is the limit in this brave new world. Opting for an ABS does away with traditional constraints and your firm can be freed from this straightjacket by embracing the advantages of a complete commercial operation. With the right technology in place, this process can be much easier and liberating than you might think for lawyer and client alike.
ABS allows for new ways of quoting and billing, cutting costs by being able to keep many more cases ‘in-house’. This holistic approach means increased profits and also the opportunity for the cross–selling of services, sharing the risk and working with third parties in better ways. There is a lot the legal market can learn from ideas and methods of working first trailed in the insurance sector and ABS is a great way for each to learn from the other. The insurance firms have long recognised the value of technology and this is something the legal firms are now becoming more aware of, regardless of whether they approve of ABS. That old adage that ‘legal work is too bespoke’ to be defined and written into best application management software solutions rang hollow a long time ago, and is no longer an acceptable excuse for continuing down a traditional path.
New methods of funding an ABS conversion, through external backing can also offer opportunities for diversifying and developing business in new ways. By allowing breakthrough into new and emerging markets, new territories and indeed the global market, firms can expand their horizons and those of their clients. This can all deliver to vastly enhanced lead generation and the obvious opportunities for inbound and outbound marketing that flow from it.
For the business as a whole, there are also the advantages for succession planning. With recruitment at the highest level no longer being restricted to qualified solicitors, the best commercial and business development brains can be brought in to do what they do best – liberating rather than limiting solicitors. The end result should be obvious – improved customer service for clients and a more robust, profitable and valuable business.
Law firms considering ABS need to adopt not simply practice and matter management but an entire integrated business and legal process solution. Insurance companies were among the first to see the benefits in defining entire processes and are now reaping the benefits through lower case costs, managed risk, higher throughput and drastically reduced claims leakage. The same logic the insurance sector embraced years ago can be successfully applied to large areas of the legal market. These include end to end business and legal processing. This is about far more than sending and receiving emails and letters but rather complete integration around multiple threaded processes linked to third party solutions and client facing portals. This includes MI/KPI and stakeholder reporting and the much vaunted management by exception. No one wants to know if something has been done, we really need to know when something has not been done and this is where management by exception comes into its own. A completely scalable technical foundation which allows hundreds of thousands or even millions of cases to be handled with quality, consistently and professionalism at each stage of the process.
One area the solicitors and insurance sectors alike are both aware of is the importance of regulatory compliance and this is where technology can make a big difference. Powerful software tools ensure all appropriate reporting is easily to hand and that risk management is an innate part of the process. Data security will only grow in importance in the years ahead and ISO/PCI and SAS compliance are all part and parcel of a secure system.
At the heart of ABS and technology remains the customer journey. Those with concerns about ABS may not like it but customer (or client) is still king and with the abolition of referral fees locking some traditional approaches to customers, communication is key to opening new revenue streams.
The right technology allows us to communicate every step of the way, with different methods depending upon customer and case type. If the client prefers communication by phone, text, portal or email, no problem. Technology means 24-hour communication is possible, for the correct time zone anywhere in the world and informed customers are happy ones.
The legal profession is seeing many changes, not least the changes to Legal Aid in the UK. Many solicitors have already responded by offering ‘fixed fee’ products and services. The burning question is how many firms are actually making money out of such cases? Without business process technologies in place, this question is extremely difficult to accurately answer. It is much easier to cost a case with well-defined business processes in place. Some legal firms are holding out to charging by the hour but solicitors are among the last clinging to an outmoded practice –soon it will no longer be an option as customers have the availability of attractive ‘fixed fee’ services that ABS will help deliver.
Knowledge is power and all this information needs to be used wisely. With great power comes great responsibility. Collaborative working enabled by all this data is fine and customers will accept it – so long as they can see the benefits. Cross-referencing of data allows firms to both set and respond to trends as they happen in real time, customer “telematics”, to use an insurance phrase, should not be discounted.
While the jury may still be out on ABS in the UK, it’s clear that the verdict is going to be a positive one. The US already gets it and now it’s our turn. Either way, we have an exciting five years ahead of us. Looking into a crystal ball, we can safely predict more non-lawyers in the highest positions within law firms. While this will be controversial (as with the debate over allowing the police to bring in outside expertise) having the means to bring in the best possible talent is a difficult argument for detractors to refute. Despite the relatively slow take-up so far, we will see increasing numbers of ‘brand companies’ adopting ABS and offering legal services as some of those on the sidelines decide the time is right to embrace the inevitable.
This is ultimately going to give improved consumer choice and force some solicitors to up their game. Opponents have branded ABS as ‘Tesco Law’, yet the irony is Tesco is not taking part. What we are seeing is those with the necessary combined expertise in the insurance and legal sectors choosing this option for the diversification and economies of scale ABS naturally offers. This may change going forwards, but for now more competition can only be good news for customers and clients facing the cuts to Legal Aid – cuts that the future is only likely to see deepen. The consumer will only welcome something that brings expensive legal services within the reach of everyone, in some cases for the first time.
This is not to say issues of genuine concern do not need to be addressed, (the SLA has already amended the application process) but many of the main concerns over security and quality of service offered can be tackled by the correct application of technology – with correct being the operative word. Technology will be the lynchpin and ironically, a move away from the ‘one stop shop’ systems providers to those who will tailor a bespoke software solution unique to each firm.
Too many off the shelf business process management systems provide ‘clunky’ results and give data management (and those who use it) a bad name in the process. Their failure is down to being designed for a specific type of business and while one size fits all may sound attractive, as in all things, the best results must always come with a system tailored specifically with your business in mind. You can then control all the parameters so that what your systems are reporting on are exactly what you need. Bespoke data systems have become surprisingly affordable with some suppliers offering innovative methods of charging, so you should not necessarily rule out this option on perceived cost before seeking a quote first.
To those who fear the decline of traditional, smaller law firms and the rise of massive ‘supermarket Legal-Insurance-Financial firms’ who are experts in nothing, tradition is only fine in so far as it serves its clients. Some traditions have led to an undue fear of solicitors in the public mind, with the fear of being charged by the second as soon as they step through the door. This has brought the legal community into largely unfair and unfounded disrepute that has lasted for centuries, from Shakespeare’s “The first thing we do, let’s kill all the lawyers” on down. ABS will bring the law and lawyers closer to people and more openness and transparency will remove some of the mysticism and misunderstanding to the benefit of all. The small firms that survive will be of the highest calibre and with the right technology in place, there is no reason they can’t continue to thrive.
Far from being a brake on solicitors, ABS provides a once in a lifetime opportunity to revolutionise the delivery of quality and accessible legal services in the UK with customers at the heart of it. With the SRA ensuring a level playing field with stringent application standards and technology providing the roadmap, the legal and insurance sectors can drive into the future with confidence. It’s only when driving on difficult terrain that ABS is fully appreciated; once everyone embraces it and the technology that will make it a success, in a few years’ time (rather like mobile phone technology) we will all be wondering how we ever managed without it.
* Andrew Sherwin, Operations Director, Aquarium Software www.aquarium-software.com