Woolham: Firms need working capital
Just 12 law firms are responsible for 83% of claims lodged with the Official Injury Claim (OIC) portal as its impact on reshaping the personal injury market is laid clear by the results of leading practices.
Minster Law highlighted the need for patient capital during a period it described as an “unprecedented hollowing out of an industry”.
NAHL – the listed company that owns National Accident Helpline and National Accident Law – argued that “there is a large latent demand that could be unlocked by a firm that can stimulate the market, educate customers on their rights and change the perception of claiming”.
Minster Law, which is owned by insurance business BHL and focuses on providing claimant services to insurers, reported a slight reduction in turnover to £28.3m for the year to 30 June 2022, with a loss of £1.5m a significant improvement on the £4.2m loss the year before. Gross profit fell six percentage points to 20%.
Chief executive Shirley Woolham said the firm had planned for the impact of the OIC and said she was “more confident than ever that Minster Law will be one of a small number of legal services providers capable of long-term profitability and high-quality service in the motor PI/insurance sector”.
Though the outcome of the mixed injuries issue continued to act as a drag on OIC claims progression, she said the sector was “probably more buoyant now than at any time since the reforms were introduced”.
But Ms Woolham said law firms required working capital to manage their way through longer settlement times.
“Crucially, they also need shareholders to provide the capital to invest in the technology and transformation required to extract value from claims which now deliver ultra-thin margins, while still delivering exceptional customer service.
“We are already seeing the impact of this, with a number of well-established, but lightly capitalised law firms exiting PI because of these new market conditions, and I’m sure there will be more before we reach a floor.”
From 2,000 PI law firms in 1999, at the time of the Woolf reforms, just 284 firms registered with the OIC and 83% of claims submitted to the portal were by 12 firms.
“This is an unprecedented hollowing out of an industry, but I stand by my view that these are hugely exciting times for legal services providers, such as Minster Law, who are able to meet the criteria required to create value for shareholders, insurer clients and customers.
Minster’s serious injury division has also expanded significantly and she said longer term the firm would invest more in non-injury areas of law as it looked to service legal expenses insurance connected to home insurance policies, as well as motor.
She added that better understanding of legal expenses insurance remained critical.
NAHL’s group revenue increased by 6% in 2022 to £41m, with operating profit up 14% to £4.8m (and operating profit margin increased by nearly a percentage point to 11.5%). Profit before tax trebled to £600,000.
Although net debt continued to fall – to £13.3m – NAHL’s board said it was not yet appropriate to reinstate dividends.
The PI business was responsible for £24m in turnover (up 14%) and £3.9m of operating profit (up 17%). When excluding the joint venture alternative business structures in which NAHL is involved, its PI business returned to profit.
Chief executive James Saralis said: “I believe that this clearly demonstrates the sustainability of this business and the positive progress that the team have made over the past 18 months.”
He put the trend of lower numbers of both road traffic accident (RTA) and other PI claims down to the behavioural changes caused by Covid, the OIC and public uncertainty about making a claim, as shown by research it commissioned.
“Our analysis of these three factors leads us to conclude that whilst the size of the market is smaller now than before the pandemic, the opportunity remains very significant and there is a large latent demand that could be unlocked by a firm who can stimulate the market, educate customers on their rights and change the perception of claiming.”
National Accident Helpline generated 34,905 personal injury enquiries in the year, a 9% increase on 2021, of which 22% were RTA cases, 51% non-RTA and 27% specialist claims.
“This number would have been higher had it not been for our decision to stop targeting tariff-only RTA claims, from February 2022, to focus on higher-value opportunities,” Mr Saralis said.
In 2022, 8,760 new enquiries were directed to NAL. These enquiries cost £2.7m to generate and should be worth £5.9m in future revenue and cash, Mr Saralis said. The group will be increasing its advertising spend this year to generate more claims.
“To deliver a significant reduction in net debt, return our personal injury business to profit and continue our growth in critical care, despite the wide-ranging macroeconomic factors working against both our sector and the economy is testament to our people and the investments we have made over the last few years,” he said.
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