Arranging funding for small cases
15 October 2020
Sourcing after-the-event insurance (ATE) for modest-value insolvency claims at a price that is affordable has been a challenge since the abolition of recoverability. There is no easy way to fix the problem that ultimately stems from the fact that legal costs do not increase in a linear fashion with the realistic value of a claim.
We know it is important for access to justice for modest value claims to find insurance cover, but it is not so obvious that it is just as important to many ATE insurers that they can underwrite smaller cases. Such cases represent much better cash flow compared to hard-fought, high-value disputes and the win frequency is better. However, following the abolition of ATE premiums and CFA success fee recoverability in 2013 (and the subsequent ‘extensions’ for insolvency litigations), it has become increasingly difficult for ATE insurers to strike that delicate balance between providing a product that is sufficiently attractive to IPs and ensuring that they are maintaining a profitable book of business. At this stage, it has become clear that maintaining the ‘status quo’ is not effective and therefore stakeholders have to be innovative if there is to be any hope of de-risking IPs with low-value claims.
Our approach to this challenge, as an ATE insurance broker, is to focus on enabling greater efficiencies at the underwriting stage so that the premiums can be reduced to reflect a reduction in administrative costs associated with writing the risk. To achieve this we are adopting a two-fold approach:
- Encouraging the use of block ratings in a multi-firm format
Block-rating is where an insurer can pre-set their insurance premium based on statistics across a basket of similar cases rather than individual risk factors associated with a single case. Prior to LASPO, this was achieved very effectively through delegated authority schemes, albeit we were only at the cusp of seeing the commercial disputes market adopt this approach before the Jackson Reforms loomed and stalled the evolution of delegated authority for law firms. More recently, that notion hasn’t just stalled it has terminated because the majority of individual firms or IPs do not have enough volume of insolvency applications within a homogenous set of criteria per annum to justify the structuring of a delegated authority scheme.
In order to combat this, we are seeking to encourage more reliance by insurers on a portfolio of risks emanating not just from one single law firm or IP but from many firms or IPs with a similar ‘best practice’ attitudes to advising clients about ATE.
- The use of technology to reduce the amount of expensive underwriter contact with each case.
We have launched a web-portal called Accelerate for law firms to submit applications for cases requiring up to £250,000 of cover. The website will use the aforementioned block-rating to assign a case a premium based on a pre-agreed rating and underwriting criteria within 24 hours from submission which the client can then seek to affirm. Importantly, this brings forward the often-lengthy process of making an application for ATE insurance and determining the likely availability of ATE and the commercial terms of any offers that may be available.
Sometimes IPs may still feel the premium is too expensive, but therein lies the point of using this technology. Everyone’s time will have been saved by the easy-to-complete portal (IP and law firm included) and most importantly from a pricing perspective there were no wasted insurer costs that would inevitable be loaded onto the next transaction creating an increased likelihood that commercial terms in the market are likely to become more, rather than less, expensive.
Accelerate in the market
Only time will tell how far the Accelerate model will go to extend the boundary of what is economically viable to insure but all we can do is take small corrective steps to push the envelope. Ultimately, the further we can expand the parameters the better it must be for the health of the ATE market and the legal profession, not to mention those who would otherwise have no means of redress.
Matthew Amey is a director at TheJudge.