The growing burden of PII may prompt SME law firms to embrace new ways of working

George Bisnought, founder and managing partner at Excello Law, on how professional indemnity insurance (PII) costs during the pandemic is pushing firms to reevaluate their business models.

The rapidly rising cost of professional indemnity insurance (PII) is having a profound impact across the UK legal sector. Some firms have even reported a doubling of their premiums this year. Firms that were already hit hard by a flatlining economy and the Covid-19 pandemic now find themselves pushed to the very brink by PII costs.

It’s little surprise that many firms faces with such challenges are now completely reappraising their business structures. A recent article in the Law Society Gazette noted that many recent mergers “are the product of one firm needing a quick exit after the insurance renewal bill tipped them over the edge.”

Sole practitioners and SME firms have been especially badly hit by the difficulty in obtaining reasonably priced PII. For many smaller firms, a merger may seem like the obvious solution. Yet while mergers can provide economies of scale, they’re not likely to fundamentally alter the business model in play – a merger may merely result in the same problems but on a larger scale.

The pandemic has enforced a sudden sea-change in working practices. As recently as early 2020, Zoom meetings and working online were completely alien to many lawyers. Now, many have learned that working flexibly can improve productivity and quality of life. Polls show that most UK employees want to continue working flexibly. Employers understand that flexible working can save their business’s money. Many of the changes brought by the pandemic are not temporary, but permanent. This realisation has impacted the sort of structures being adopted by practitioners in search of new ways of working.

An alternative to mergers, many practitioners are amalgamating with business structures that provide innovative, support-service platforms, which enable them to work as consultants. Such new-model law firms are often specifically designed to operate as decentralised networks of dedicated consultant lawyers. Many also operate largely online, enabling lawyers to join such structures without relocating. Such mutually-supportive structures can offer attractive alternatives to the ongoing financial stresses and administrative strains involved in running a small firm.

Since 2009, I have been involved in developing such a new-model network. Our particular structure means that administrative, compliance and technical support is always available to our consultants, as is the complementary expertise of fellow professionals. Yet the managerial, administrative and compliance responsibilities are taken care of for them. Many of our consultants formerly ran their own practices and are delighted to have changed tack. They’ve discovered that one the administrative, regulatory and cost burdens are lifted from their shoulders, they can really focus delivering for clients.

The pandemic has accelerated pre-existing shifts in the economy and working practices. These changes are fundamentally driven by technology and a desire for more collaborative ways of working, which place a premium on a healthy work-life balance.

As the cost pressures and regulatory burdens traditional law firms increase, ever more lawyers will seek out new, creative, agile, interdependent and collaborative ways of working. For UK law firms, as for the wider economy, it’s a brave new world.