First-class practice is key to risk avoidance

Tracey Croft explains how the practice management certification scheme can help firms achieve excellence

The advent of the open market for professional indemnity insurance has focused attention more than ever before on the need for law firms to ensure that they have in place first-class management systems and procedures.

Practice excellence should be the standard for all law firms, not just the few, as each and every firm will be exposed to the commercial reality that law is a business.

Client care is the foundation of practice excellence and firms need to appreciate that delivering a consistently high standard of service to clients is the fast-track to risk avoidance.

For too long, firms have taken a narrow view of client care as being compliance with Law Society Practice rule 15 and complaints.

Now, more than ever before, firms need to take a more holistic view of their practices and to appreciate that the implementation of systems and procedures designed to achieve service excellence will not only benefit the client but also be a key factor in risk assessment by insurers.

Whatever level of indemnity insurance premium a practice has been able to secure, the safest way to ensure a lower premium in the future is to enjoy an improved claims record - and thus manage risk.

Following its launch in 1998, the Law Society's practice management certification scheme - Lexcel - has seen steady growth.

However, following endorsement of the scheme as an effective risk management tool from many insurers and brokers and indications that reduced premiums for Lexcel awarded practices are likely, this has lead to a surge of some 1,500 enquiries within a three-month period.

Lexcel is the only legally specific certification scheme for practices that meet the Law Society's practice management standards (PMS).

The PMS cover six areas: management structure, services and forward planning, financial management, office administration, managing people and - by far the largest area - case management.

In addition to effective risk management, Lexcel can also deliver improved client care, better management, improved profitability, and competitive advantage, and can provide a foundation for growth.

There are a number of areas identified by indemnity insurers and underwriters as the main causes of claims against solicitors.

These include missing specific time limits, taking inadequate instructions, poor supervision, and failing to ensure conflicts of interest are avoided.

All of these areas are covered by Lexcel, which ensures that practices exercise good risk management in a variety of ways.

Examples include ensuring effective diary control, making risk assessment a management responsibility and, crucially, that solicitors have the required skills to deliver their services.

Peter Warner, a solicitor and legal services development manager with Focus Quality Services, suggests that a starting point for firms, and especially managing and senior partners, is to recognise that all practices can assess and manage risk.

The recognition of the need to control risk is of fundamental importance, and many solicitors at a senior level have a fatalistic - or indeed, cavalier - attitude to the problem.

As Mr Warner explains: 'The prevalent attitude among some firms is still perhaps shaped by the safety net of the Solicitors Indemnity Fund (SIF) being there to pick up the pieces where there are claims.

The abolition of the SIF as the compulsory insurer should prompt firms of all shapes and sizes to re-examine their attitude to risk.

The advent of the open market means that every individual practice will be exposed to the commercial realities of insurers approved by the Law Society.

It is therefore imperative that practices take practical steps now to seek to evaluate, manage and limit their exposure to potential claims.'

How insurers view risk

In the open market for professional indemnity cover the accent will be on the risk management systems in evidence at each firm.

Mr Warner explains: 'Preliminary indications are that insurers will have scope substantially to reduce premium levels according to two main indicators.

The first will be a reflection of the claims experience of the practice.

A first-class record of few claims could, it seems, lead to reduction in premium levels of up to 50%.

The second factor will be the extent and effectiveness of the risk management procedures in place.

'Again, we gather that a firm with sound systems and procedures in place could qualify for a further 25% reduction in premium levels.

This must be a powerful incentive for firms to assess what procedures exist to limit exposure to claims.'

Communication and supervision

Mr Warner continues: 'Underpinning the operation of systems and procedures will be the extent and quality of communications, both within the practice and externally.

This is a key theme in managing risk.

For example, in dealing with clients we must confirm instructions given, our advice and the action to be taken in writing.

'We must ensure that our retainer is clear in its nature and extent and provide written terms and conditions of business.

To monitor these issues helpful arrangements will include diary notes, file reviews, standard advice letters and full attendance notes.

Internal communications often break down due to poor delegation, a failure to monitor progress and deal with undertakings.

'One particular aspect is the ratio of partners to fee earners.

In profitability terms firms and departments are exhorted by the management consultants to increase the number of "indians" in proportion to "chiefs".

Many inter-firm comparisons demonstrate that this increased level of gearing can lead to enhanced profit.

'However, the successful operation of this type of pyramid structure requires its active management.

This entails good levels of supervision of those fee earners.

Too often firms of all shapes and sizes are characterised by poor management and supervision of juniors or in some cases its complete absence.

'Real evidence supports the fact that the management and control of risks are much to do with the culture, structure, organisation and management of the practice aided by good communications.'

Practical steps

Mr Warner says the most widely applicable quality initiative is the Lexcel practice management certification scheme.

The particular relevance of Lexcel to risk management is to be found largely in section F, which deals with case management.

This section requires firms to have arrangements and procedures to deal with such matters as:l Identifying conflicts of interest;l Monitoring workloads;l Maintaining a back-up for key dates;l Monitoring undertakings;l Rule 15 compliance;l Agreeing costs and terms of business;l Updating clients on progress, and;l Supervision and file audits.

Fortunately for the future of the profession, the maintenance of systems that deal with all these aspects of case management will effectively address many of the areas identified by insurers as critical in managing risk.

As Mr Warner has indicated, the message from insurers is that the implementation of robust procedures through the award of Lexcel will be a clear demonstration of measures to control and manage risk.

The possibility of more favourable premium levels for those firms that are able to demonstrate the Lexcel award will surely act as an incentive to those firms who are as yet undecided about the real benefits of managing risk effectively.

For a free Lexcel information pack, contact the Lexcel Office, tel: 020 7320 5756.

For further information on the practice excellence unit, please call Maureen Miller, tel: 020 7320 5943.

Tracey Croft is manager of the Law Society's Lexcel practice management certification scheme