Some of the headline figures put the problems ofthe last four years into sharp focus. Amongst theTop 10 firms profit per equity partner (PEP) fell24% despite a reduction of 6% in equity partnernumbers. This trend was even more pronouncedamongst the 11th to 25th largest firms, where PEPdeclined by 31% despite a reduction of 20% inequity partner headcount.

As a key component to protecting margins, costreduction remains high on the agenda with 53%

Legal Services BulletinNOVEMBER 2012

COMMENT FEATURES: see overleaf

PI INSURANCE

transformation & transparency?

MERGERS & ACQUISITIONSmaximising efficiencies

November saw thepublication of the annualPwC Law Firms Survey.

Whilst the survey is restricted togauging performance amongstthe Top 100 firms in the UK,many of the themes and trendsidentified are applicable acrossthe sector.

PRACTICE TIPSEMAIL ENCRYPTIONStoke on Trent City Council was recently finedreduction remains high on the agenda with 53%

of firms having completed a cost reductionprogramme in the past 24 months (one doeswonder what the other 47% of firms have beendoing!)

However, the majority of firms reported savingsof only 5% or less, and not one of the Top 25firms reported cost savings in excess of 10%.

This disappointing figure reflects our ownobservations; we’re often engaged by firmswhere, prior to our appointment, cost reductionand process improvement may have been shortterm and tactical, rather than a sustainedstrategic process with buy-in at executive level.

As PwC make clear “firms should be taking amore transformational approach” which can oftenonly be achieved by stepping out the loop of dayto day practice management.

The evidence from the work we’ve carriedout indicates that opportunities exist tocodify and simplify processes, and explorethe judicious use of automation andoutsourcing.

Jason AdderleyT: 0121 602 1445M: 07824 449 577E: j.adderley@erauk.net

The Editor

Jason Adderley is a consultant Partner with ERAspecialising in managing programmes of work forlegal and professional services firms.

He has 17 years experience of working withsolicitors and other professional consultants as aclient and as a service provider.

Stoke on Trent City Council was recently fined£120,000 after an in-house solicitor sentunencrypted sensitive emails to the wrong address.Do you have a policy on encryption? Is it followed?

INSURANCEGreater competition, aided by new entrants to themarket has led to a small reduction in PIIpremiums (see overleaf). When did you last reviewyour Insurance Schedule in it’s entirety?

POSTAGEWith the myriad of postal tariffs available, theadvent of Online Business Accounts (OBA),downstream access providers, VAT issues and thepotential flotation of Royal Mail is postage a costyou can afford to ignore?

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Since moving to the open market in 2000Professional Indemnity Insurance (PII) hasbeen a constant source of angst for law firmsand insurers alike.

Firms have watched in thinly veiled horror aspremiums have soared and viewed the contraction ofcompetition in the market with despair.

Insurers meanwhile have grown tired of contributingtowards, and being liable for those firms that havetaken refuge in the Assigned Risks Pool (ARP).Clearly, the very existence of the ARP has been acontributory factor to muted competition in themarket – particularly cover for smaller practices.

The Solicitors Regulation Authority reformsannounced earlier this year are by no means apanacea, but are certainly a step in the rightdirection.

From October 2013 the ARP will be replaced by ashort term 90-day extension to policies for firms thatfail to obtain insurance for the following year, this isvery much a last resort as firms won’t be able towrite new business after the first 30 days.

October 2013 will also see the end of the singlerenewal date. Although true flexibility would seem tobe limited (at least at first) it does allow firms to

In our last Legal Services Bulletinwe highlighted the deterioration infirms cash flow positions.

Indeed, reducing cash flow volatility,reducing risk and stabilising earningsare the key drivers for the rash ofmergers and acquisitions in thesector.

Growing scale and deriving thebenefits takes time and there can besubstantial short term pain asheadcount reduces and duplicatedservices are withdrawn.

Perhaps therefore it’s understandablethat fewer than 20% of respondentssaid that law firm mergers wereeffective according to Legal Week.

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Jason AdderleyT: 0121 602 1445M: 07824 449 577E: j.adderley@erauk.net

be limited (at least at first) it does allow firms tosolicit offers for two year deals.

In the current climate this may allow insurers to takea more realistic view on risk, and firms could benefitfrom greater degree of certainty in budgeting andcash flow management.

It would seem that the reforms have encouraged newplayers to enter the market early. In the latest roundnew entrants Balva and Axis Specialty capturedbusiness, amongst others.

The Law Society Gazette also reported a small fall inthe total amount of money firms paid for their coverthis year – down from £256m to £239m.

With market reform offering opportunities for furtherreductions, it would pay to have an expert on boardto maximise and embed the savings for firms.

At ERA we’re fortunate that our Insurance CostManagement team are adept at finding savingsacross the insurance schedule, whilstmaintaining or enhancing the level of cover ourclients enjoy.

When Practice Management is faced withthe challenges of ‘cultural fit’, complexintegration of IT systems and the constantpressure of regulation the review of manyindirect costs may be kicked into the longgrass or not dealt with at all.

Naturally, at ERA we believe this is amistake.

Where we’ve been engaged early in theprocess of merger we’ve quickly begun todeliver substantial and sustainable savingsthrough leverage, consolidation andsimplification of contracts.

Merger or acquisition is also an ideal timeto consider new processes andoutsourcing opportunities.