Will Lexcel really help me to reduce my indemnity premiums?

This is a really good question for this business time of the year, and the views that follow stem from personal experience in a law practice.

Professional indemnity renewal is uppermost in the minds of partners at the moment. I think it is still very much the case that insurers will look first at claims experience – this is the hard evidence to calculate premiums. But do not stop reading on the basis that there is nothing you can do about it, or that this justifies your decision not to go for Lexcel, because this would be wrong. Things are changing.

For insurers, quality management is becoming increasingly important. There are fewer insurance companies taking on professional indemnity for law firms, and the remainder will have to find a way of differentiating between firms. Insurers will therefore become much more choosy and Lexcel is one way of demonstrating good risk management. Insurers use facts. The reality is that since 1999 premium income has fallen by £50m. As the number of insurers in the market has fallen, something has to happen. The best way to reduce potential premium increases is to improve quality management and have the certificate to prove it. There should not be any difference between the larger firms and the smaller ones in the need for quality, but across the range there are different issues. The smaller firms are the highest risk, statistically, while the larger firms have logistical challenges. Both, in their own ways, can find reasons to park the need to address the issue.

I have come across those who say ‘I don’t need exams to get where I want to be’, but those of us who have passed them know full well that the benefits are wider than that. I hear partners from firms who say they do the right things and do not need to prove it by having the accreditation – to which my answer is: prove it.

I also come across a number of partners from firms of all sizes who argue that Lexcel is not for them, but no really convincing argument has ever been put to me why not. It is particularly distressing that a number of larger firms do not seem to be taking on board the values that achieving the standard will bring. I have noted previously that Lexcel has enabled firms to stay ahead of the Code of Conduct.

For example, budget variance analysis and cashflow forecasting cannot now be overlooked. The control of file management and standardising procedures across the business are also benefits, but for larger firms this can be a nightmare. Good case-management systems will be necessary and a full understanding of the support they bring. The IT people in some firms are not necessarily familiar with the connections and may need help. The quality standard enables the practice to have procedures upon which you may ‘hang your hat’ when trying to convince the unwilling or the autocratic to come on board, and there is nothing like an external audit or review to make sure that things are as they should be.

Premium advantage

Lexcel has been in place for long enough to show that many firms are reaping the benefits of lower claims records as a result of better risk management. Insurers, or at least some of them, are beginning to take notice. The future, therefore, looks brighter for those who already have the standard. Proposal forms nearly always ask which, if any, quality standards have been achieved, and this applies across the whole spectrum. However, a mere tick will not get you a lower premium.

Insurers now know that where the box can be ticked the prospects are better on average than otherwise. Insurers also know that Lexcel firms are demonstrating fewer claims as a whole. Most complaints and claims do not arise through bad law but through bad procedure and, apart from the cost of claims, the management downtime will usually improve by the reduction of wasted energy and money.

The cost of implementation will be self-funding in a short time and even profitable in the medium term. Lexcel is not a quick fix, nor is it a box-ticking exercise. It does take effort and you may need help with consultancy support to speed up the process, and because it is quite common to get stuck. You will also need a champion in the firm. Many firms give away thousands of pounds in premium costs and downtime without realising that such expenditure is not inevitable and maybe, just maybe, you could sleep better at night not having to wonder who is doing what. If this is multiplied in the larger firms, the cost is likely to be enormous and, as many large firms have lawyers devoted wholly to dealing with claims and complaints, surely any reduction would be a good outcome. Maybe it is these people who should be devoted to quality standards.

The difference between a lawyer who transfers from a Lexcel firm compared with one who has not has been stunning in my experience. This is not a matter of good law, it is a matter of good processes, which in themselves are a solid foundation for good law.

I may be preaching to the converted. They will be the ones who turn up to the excellent LMS conferences, but they are, I am afraid, in the minority. They are the firms who have a standard bearer – perhaps those law firms who don’t have such people should take time to review. It is true that Lexcel takes a lot of effort and it may require outside assistance. The return on investment should come through quickly, because even the process of putting Lexcel procedures in place will pay its way fairly soon.

I can also say that, if there is a visit by the Solicitors Regulation Authority, having the standard will put you on the front foot as many of its checks are the same as Lexcel. File audits are a very good example.

In summary, to answer the question above, there should be no doubt about it, especially with the impending challenges of competition and possibly mergers in the years to come. Now is the time to get on with it.

The LMS Lexcel Quality Forum 2008 takes place in London on 14 October. For more information, see www.lms.lawsociety.org.uk .

Mike Gorick is now a partner at consultants SSG Legal, specialising in mergers, risk and quality standards.