Referral fee ban will trigger PI buyouts

Personal injury firms will become takeover targets as claims managers and brokers prepare for the referral fee ban, according to a report published today by Deloitte.

The business advisory firm predicted that those with the most to lose from a ban will use the new rules on ownership of legal firms to reinforce their business. In its latest insurance market update, the firm said the alternative business structure era had come at the perfect time for companies needing a legal arm to circumvent the ban.

The report said a ban on referral fees in personal injury cases, expected to become law in April 2013, will have ‘significant implications’ for certain insurers and claims managers who rely on them to drive profits.

‘These businesses arguably have the most to lose if they do not act,’ it said. ‘Such businesses will have a choice of developing partnerships with personal injury solicitors, building their own legal capability of acquiring that capability.’

Stephen Ross, insurance partner at Deloitte, said the market was also attractive for private equity investors who want to create integrated claims management business with existing law firms.

He added: ‘Changes to the ownership of law firms and the planned ban on referral fees are likely to lead to a spate of mergers and acquisitions in the insurance industry.’ The Solicitors Regulation Authority is expected to enforce a ban on referral fees, although it is unclear how that will work in practice if law firms and claims managers work under the same umbrella.