Hints & Tips from Expense Reduction Analysts for UK law firms seeking to reduce costs and improve processes.

1. Some of the headline figures put the problems of
the last four years into sharp focus. Amongst the
Top 10 firms profit per equity partner (PEP) fell
24% despite a reduction of 6% in equity partner
numbers. This trend was even more pronounced
amongst the 11th to 25th largest firms, where PEP
declined by 31% despite a reduction of 20% in
equity partner headcount.
As a key component to protecting margins, cost
reduction remains high on the agenda with 53%
Legal Services Bulletin
NOVEMBER 2012
COMMENT FEATURES: see overleaf
PI INSURANCE
transformation & transparency?
MERGERS & ACQUISITIONS
maximising efficiencies
November saw the
publication of the annual
PwC Law Firms Survey.
Whilst the survey is restricted to
gauging performance amongst
the Top 100 firms in the UK,
many of the themes and trends
identified are applicable across
the sector.
PRACTICE TIPS
EMAIL ENCRYPTION
Stoke on Trent City Council was recently finedreduction remains high on the agenda with 53%
of firms having completed a cost reduction
programme in the past 24 months (one does
wonder what the other 47% of firms have been
doing!)
However, the majority of firms reported savings
of only 5% or less, and not one of the Top 25
firms reported cost savings in excess of 10%.
This disappointing figure reflects our own
observations; we’re often engaged by firms
where, prior to our appointment, cost reduction
and process improvement may have been short
term and tactical, rather than a sustained
strategic process with buy-in at executive level.
As PwC make clear “firms should be taking a
more transformational approach” which can often
only be achieved by stepping out the loop of day
to day practice management.
The evidence from the work we’ve carried
out indicates that opportunities exist to
codify and simplify processes, and explore
the judicious use of automation and
outsourcing.
Jason Adderley
T: 0121 602 1445
M: 07824 449 577
E: j.adderley@erauk.net
The Editor
Jason Adderley is a consultant Partner with ERA
specialising in managing programmes of work for
legal and professional services firms.
He has 17 years experience of working with
solicitors and other professional consultants as a
client and as a service provider.
Stoke on Trent City Council was recently fined
£120,000 after an in-house solicitor sent
unencrypted sensitive emails to the wrong address.
Do you have a policy on encryption? Is it followed?
INSURANCE
Greater competition, aided by new entrants to the
market has led to a small reduction in PII
premiums (see overleaf). When did you last review
your Insurance Schedule in it’s entirety?
POSTAGE
With the myriad of postal tariffs available, the
advent of Online Business Accounts (OBA),
downstream access providers, VAT issues and the
potential flotation of Royal Mail is postage a cost
you can afford to ignore?

2. PI INSURANCE REFORM
TRANSFORMATIONANDTRANSPARENCY?
Since moving to the open market in 2000
Professional Indemnity Insurance (PII) has
been a constant source of angst for law firms
and insurers alike.
Firms have watched in thinly veiled horror as
premiums have soared and viewed the contraction of
competition in the market with despair.
Insurers meanwhile have grown tired of contributing
towards, and being liable for those firms that have
taken refuge in the Assigned Risks Pool (ARP).
Clearly, the very existence of the ARP has been a
contributory factor to muted competition in the
market – particularly cover for smaller practices.
The Solicitors Regulation Authority reforms
announced earlier this year are by no means a
panacea, but are certainly a step in the right
direction.
From October 2013 the ARP will be replaced by a
short term 90-day extension to policies for firms that
fail to obtain insurance for the following year, this is
very much a last resort as firms won’t be able to
write new business after the first 30 days.
October 2013 will also see the end of the single
renewal date. Although true flexibility would seem to
be limited (at least at first) it does allow firms to
In our last Legal Services Bulletin
we highlighted the deterioration in
firms cash flow positions.
Indeed, reducing cash flow volatility,
reducing risk and stabilising earnings
are the key drivers for the rash of
mergers and acquisitions in the
sector.
Growing scale and deriving the
benefits takes time and there can be
substantial short term pain as
headcount reduces and duplicated
services are withdrawn.
Perhaps therefore it’s understandable
that fewer than 20% of respondents
said that law firm mergers were
effective according to Legal Week.
MAXIMISING EFFICIENCIES
TRANSFORMATIONANDTRANSPARENCY?
Jason Adderley
T: 0121 602 1445
M: 07824 449 577
E: j.adderley@erauk.net
be limited (at least at first) it does allow firms to
solicit offers for two year deals.
In the current climate this may allow insurers to take
a more realistic view on risk, and firms could benefit
from greater degree of certainty in budgeting and
cash flow management.
It would seem that the reforms have encouraged new
players to enter the market early. In the latest round
new entrants Balva and Axis Specialty captured
business, amongst others.
The Law Society Gazette also reported a small fall in
the total amount of money firms paid for their cover
this year – down from £256m to £239m.
With market reform offering opportunities for further
reductions, it would pay to have an expert on board
to maximise and embed the savings for firms.
At ERA we’re fortunate that our Insurance Cost
Management team are adept at finding savings
across the insurance schedule, whilst
maintaining or enhancing the level of cover our
clients enjoy.
When Practice Management is faced with
the challenges of ‘cultural fit’, complex
integration of IT systems and the constant
pressure of regulation the review of many
indirect costs may be kicked into the long
grass or not dealt with at all.
Naturally, at ERA we believe this is a
mistake.
Where we’ve been engaged early in the
process of merger we’ve quickly begun to
deliver substantial and sustainable savings
through leverage, consolidation and
simplification of contracts.
Merger or acquisition is also an ideal time
to consider new processes and
outsourcing opportunities.