Green shoots and withering leaves
The collapse of Lehman Brothers five years ago was seen by many as a cleansing moment. The western world was purging itself of years of financial gluttony and preparing to rebuild on healthier foundations.
Barely two years into the credit crunch, lawyers on the high street were already talking about green shoots.
But if 2008 was the year that the profession was optimistically clinging on to hopes of a swift exit from the biggest recession since the second world war, 2013 could mark the beginning of a darker chapter in the history of legal services in this country.
Several indicators point to a timid recovery. Property work – at least in southern England – is picking up, Britain’s unemployment rate is significantly better than the EU average, and the economy as a whole looks like it’s notching upwards.
For hundreds of law firms, however, the reality is very different.
The unrated insurers’ fiasco – Balva, then Berliner – combined with the retirement of the assigned risks pool means that many will not survive the end of the year. Some observers are even predicting that as many as 1,000 firms could collapse by Christmas.
No doubt some of the 1,300 firms with Balva policies will be able to secure indemnity cover for another year. But the majority are probably too much of a liability for increasingly risk-averse indemnity insurers.
There are still a few – not many – unrated insurers prepared to pick up crumbs of business. The Law Society has even come to the rescue with Chancery Pii, a joint venture with Miller Insurance offering firms with up to and including four partners access to rated insurers without the extra cost of traditional brokerage fees. It is keeping quiet about how successful the new scheme has been, which suggests, worryingly, that the take-up has not been as big as anticipated.
Behind the urgent indemnity issue lies, of course, the sleeping monster of financial stability. Earlier this week it emerged that around 100 firms were in serious financial difficulty. These are mostly local practices that can be described as ‘Challinors’ type – significant on a regional scale, running out of cash, and whose collapse could cause serious ripples – which the Solicitors Regulation Authority says are in need of “immediate and in-depth engagement”.
What doesn’t kill your firm could make it stronger, but right now, these green shoots are looking more like withering leaves.