THE Midland legal sector could see further consolidation before the end of the year as firms across the region prepare to renew their professional indemnity insurance for the coming 12 months.
In many cases these premiums have risen to reflect the market, with small and medium sized firms having to find close to £100,000 to ensure they can keep practicing.
Insolvency expert Matt Hardy, of Birmingham-based Poppleton & Appleby, said he believed the demands could see small and medium sized law firms having to be absorbed by larger and more successful rivals.
He said: “The sector has already seen several examples of smaller firms being either taken over entirely, or having to merge with others simply to survive.
“The downturn may have taken longer to hit some of the law firms than it has the rest of the economy but we are finding that it is really taking its toll.
“Many firms have found that their core activities – property for example – have dried up and while they have traded through the year, they are now faced with this large bill for PI insurance, and for some it may well to prove the straw that breaks the camel’s back.”
He said law firms – like businesses in other sectors – had reacted to the downturn by cutting overheads, but with many experts predicting a slower recovery, this would still not be enough to continue trading.
“We recently handled the administration of one Midland firm which had four offices across the region and it was kept alive thanks to another practice taking it on,” added Mr Hardy.
“It would have faced a PI bill in excess of £100,000, one of the key factors which proved too much for it to continue trading.
“There has been a dramatic rise in the number of solicitor’s PI claims being handled and as a result premiums have risen. In the worst cases, we have heard of some firms simply being refused cover because the risk if too high and that prevents them trading.”
A survey by the Law Society’s Law Management Section released earlier this year revealed that in 2009 average practice fee income fell 6.5% compared with 2008 while average profit per equity partner fell by 24%.
Mr Hardy added: “While those figures are not as bad as experts expected, many thought that we had bottomed out, but for quite a few law firms that does not appear to be the case and the PI payment will be a bitter pill to swallow.”
