The long ball game

One criticism regularly levelled at advocates of risk management is that setting up procedures devours huge amounts of non-billable time, yet the cost-benefit in terms of reduced insurance costs is hard to detect.


On a one-year view, and especially in what is likely to be a softening insurance market, it is difficult to point to immediate savings. However, over the longer term there is little doubt that that quality risk management procedures will save law firms far more than they cost to set up. In the most extreme cases risk management will ensure that the firm is still in business and is able to secure the insurance it needs.


Here is an example to convince the sceptics. Claims company The Accident Group (TAG) went bust, leaving 800 law firms facing the possibility of sharing a total litigation exposure of as much as £70 million for taking on what are alleged to have been unwinnable personal injury cases.


Under TAG's procedures firms that took on personal injury cases had a period in which to investigate the claim, after which they could either continue with the claim, or drop it if they felt they had a less than 50% chance of winning. We do not know whether the allegations in relation to the possible litigation are true, but consider the hypothetical example of two personal injury specialist firms, both of which had benefited from regular referrals from TAG.



Firm A's risk management procedures and diary systems ensured that all cases were logged, followed up and subjected to peer-to-peer file review. Its detailed records clearly show that it had rejected a reasonable proportion of cases as unwinnable. They also show that it had a better record of winning personal injury claims than its rivals.


Firm B took a similar flow of business from TAG. The cases were handled by the personal injury department, which was confident in its abilities to deliver a high quality service. The partner in charge of the department accepted that a proportion of cases would be lost because of the nature of the claims and the department was left to its own devices.


Today firm A is in a far better position to defend itself against any potential claims for negligence than firm B, which will have to spend many hours of non-billable time scrabbling through past files to collate information about cases won, lost or rejected. If there does prove to be a case to answer, firm A is less likely to have problems with its professional indemnity renewal, as it has information to hand to demonstrate that its risk management procedures were effective. Firm B, on the other hand, would find its renewal much harder, particularly if the threat of litigation is unresolved.


Against this background putting a price on risk management procedures remains difficult - but its value to law firms should be in no doubt.


This column was prepared by AFP Consulting, a division of Alexander Forbes Risk Services UK