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Insurance practices thriving as economy tightens

As insurance law practices continue to expand despite a declining economy, are full-service and insurance-specific firms alike bolstering their practices and battening down the hatches as the economy worsens and a recession looms? Here, legal recruiters and law firms weigh in on how insurance is likely to fare moving forward.

user iconLauren Croft 28 June 2023 Big Law
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Within the insurance practice space, the amount of movement and growth between firms and practices has been astronomical in the last year alone. This is consistent with the sector becoming bigger and bigger, especially with new insurance risks in terms of ChatGPT, artificial intelligence tech and legal tech, as well as the rise and increasing importance of cyber insurance.

Interestingly, the insurance practice area historically fares well in the face of a recession, as people continue to require home owners, life, car and health insurance despite the rising cost of living.

This was seen after the Great Recession and the 2008 market crash, with the US Government Accountability Office (GOA) reporting that while some insurers initially experienced capital and liquidity pressures, their capital levels had recovered by the end of 2009.


So, 15 years later, as the economy tightens and inflation increases, are more full-service firms expanding their insurance practices against ongoing economic turbulence?

Increased movements in a competitive market

In May this year, Meridian Lawyers poached further professionals for its national insurance practice group from fellow BigLaw firm McCabes, making it 30 new starters hired from the latter firm in recent times and revealing a massive growth strategy for its insurance practice.

This followed the news that a team of eight lawyers and five paralegals had joined Meridian’s national insurance practice group in April after the BigLaw firm appointed Cameron Solley as a new principal in the team.

And the insurance practice area isn’t just growing within Meridian Lawyers; last year, Gilchrist Connell promoted three special counsel in its insurance practice, as well as five associates. This came after the appointment of an insurance partner, Helen Tieu. And back in 2021, Gilchrist Connell’s national insurance practice saw “rapid” expansion to meet a surge in client demand, resulting in a net increase of 30 per cent in staff.

Additionally, in June last year, Mills Oakley poached partner Jason Symons from BigLaw rival HWL Ebsworth to establish a new cyber risk and insurance practice, with the depth of Mill Oakley’s national insurance practice set to continue to grow. Colin Biggers & Paisley also began expanding its insurance team last year, with the promotion of a new senior associate.

CBP partner and joint practice leader of the insurance team Cathryn Prowse said that this expansion is in line with the growth of the firm's insurance practice over the last five years.

"This has supported seven internal promotions into the partnership and a commensurate increase in legal practitioner headcount. More recently our focus has been to bolster our insurance offering out of Brisbane, which has nearly doubled in size with an expansion of our line offerings," she told Lawyers Weekly.

"Colin Biggers & Paisley's insurance growth has been driven by both internal and external factors. We have a long history of consciously training, supporting and nurturing first-rate practitioners who, in turn, are sought after by the domestic and London market for their expertise. However, our growth is also in response to market factors including increases in cyber incidents, COVID, class actions and various Royal Commissions which have resulted in an uptick in insurance coverage and defence work."

Later in 2022, Mills Oakley acquired Sydney insurance firm Vardanega Roberts, with partners Stephen Vardanega and Mike Roberts and their team joining the firm’s ranks, which Mills Oakley Sydney insurance partner Louise Cantrill said was the “highlight of a strong year” that saw “clients continuing to respond to the unique Mills Oakley value proposition”.

“We have expertise across nearly all lines of insurance and deliver national and international solutions by leveraging our knowledge of the global insurance market and our affiliations with national, regional and global industry bodies,” she told Lawyers Weekly.

“An important part of our value proposition is that we are a full-service firm, so our insurance clients have ready access to adjacent expertise in areas where a swift and accurate assessment of technically complex issues is needed — for example, engineering, construction and loan documentation.”

These movements, Naiman Clarke managing director Elvira Naiman opined, are likely due to the fact that most insurance work comes in panels.

“What that means is that if there is a change in the ‘panel firm’, partners are more inclined to move to where the panel work has been shored up,” she said.

“Most of the insurance clients also like to work with the same panel ‘nationally’, so some of the moves have been as a result of partners from local defendant firms moving into national firms, and smaller firms closing shop or merging with larger or national ones.”

In the 12 months alone, Mills Oakley (MO) has increased its insurance partner count from 11 to 15, and its lawyer headcount from 49 to 75, and it is “actively recruiting” to build the insurance capability within its new Adelaide office, which opened in January.

“Insurers are highly sophisticated users of legal services, and they know the insurance law firms almost as well as they know their most valued customers. It is a tight-knit market, and law firms are constantly tested to ensure they are meeting, if not exceeding, on all the key measures,” Ms Cantrill added.

“In this ultra-competitive market, MO focuses on finding and keeping talented lawyers, providing career paths and opportunities, building respectful relationships within the team and with claims staff at all levels and using technology to meet the market’s preference for cost-effective solutions that deliver faster and consistent service.”

This trend isn’t necessarily a new one — the insurance space has experienced exponential growth in recent years — as well as historically fared well in economic turbulence. However, bigger firms may reportedly be bolstering their insurance teams in order to keep themselves afloat during a recession, forcing insurance-specific firms to grow their own teams at pace.

"Australia has a sophisticated and stable insurance market which tends to entice bigger firms and new-comers in times of economic uncertainty and contraction," Ms Prowse added.

"The question is whether these firms can survive the highly competitive nature of the insurance market in the long term: history is not on their side."

This, Taylor Root associate director Sean Murphy outlined, is because insurance is a “stable area of law” and is therefore seeing increased movement as the market grows.

“There have been a number of partner moves recently, with more to come. The candidate market in insurance for quality partners and lawyers is the same as the general legal market, very tight,” he told Lawyers Weekly.

“We are also seeing insurance firms that are wider in the scope of lawyers that they will look at. It used to be hard for a plaintiff-focused insurance lawyer to make the move to a firm that works for an insurer. There is more flexibility now.”

For Gilchrist Connell, the growth in the insurance sector over the last three years has been “enormous” and particularly driven by client demand, according to managing principal Richard Wood. The firm generates over 85 per cent of its revenue from within the insurance sector.

“Our headcount has increased by 96 per cent since 1 July 2020. That trend is continuing, so we will always be looking at good people across the sector. We don’t just look to hire for the sake of it though. We work hard to ensure that people coming to us align with our values and the employee experience that we offer. That hard work ensures we get the right people in the door to create a supportive environment where they get to do good work for great clients alongside a diverse bunch of colleagues who all share our values,” Mr Wood said.

“The market for candidates in our sector of the industry has always been tight, but despite the recent very hot labour market, we’ve done pretty well. This committed focus on maintaining our culture (especially through periods of significant growth), and our people’s positive experience coming into work every day, have been our greatest assets in supporting our recruitment efforts.”

While the insurance sector — and the candidate market within it — is “immensely competitive”, Mr Wood emphasised that being a specialised firm has a number of advantages.

“The insurance sector is immensely competitive. We do complex work for some of the most sophisticated users of legal services on the planet. We are measured by them constantly against our competitor firms on a range of subjective and objective KPIs and always under a degree of control over fees. Those factors combine to mean that new entrants find it challenging to come into our space — if your firm isn’t designed and built to survive in that atmosphere, you’ll find it hard to survive,” he added.

“The insurance sector has always been competitive though — the firms like us who specialise and thrive in it only do so by being successful at continuous improvement and innovation, and at listening to their clients who must themselves deliver continuously improved performance in a changing world.

“The cliché is that the only constant is change. That is certainly true in the insurance world. Insurer margins are under pressure from catastrophic weather events, increasing levels of cyber crime, high inflation, and regulatory changes. We are constantly examining and evaluating our systems, methodologies and overall service offering to ensure we are exceeding our clients’ needs and expectations.”

Lawyers Weekly also reached out to Sparke Helmore for commentary on the amount of movement between firms but was informed that partners were reluctant to go on the record. Additionally, questions were posed to Meridian Lawyers about its growing insurance practice and the increasingly competitive market, but the firm did not respond.

This competitive market, Burgess Paluch director Paul Burgess explained, is a result of a gradual build-up of demand in the insurance market over the last year — and “a lack of supply of lawyers” to ease it.

“Specialist firms are often attractive to insurance lawyers, as they know their work is valued and a core business, unlike some of the national firms [that] have jettisoned their insurance practices. The reality is that the financial metrics of an insurance practice often suit a specialist or lower cost-base firm, as the partners cannot always achieve the significant gearing needed to succeed in a full-service national firm,” he said.

“But while salaries have pushed upwards, they still lag a little behind the transactional areas and commercial disputes, primarily as the insurers negotiate hard for lower rates, so the margins just aren’t there. As a result, the firms are limited with what they can do to address salary pressures. [Additionally], there are vacancies across most insurance practices, both local and national, and it shows no signs of retreating.”

Post-pandemic impacts

Post-pandemic, business interruption insurance was also causing litigation concerns, according to Global Insurance Law Connect’s Business Interruption Report, launched earlier this year.

According to the report, a small number of claims in Australia have been paid out by insurers since the pandemic began. These claims have typically been submitted by companies seeking recovery under specific covers, such as event cancellation. However, insurers have contested a number of claims, and this led to litigation.

However, Ms Naiman said that the growth and movement within the insurance sector are unlikely related to the pandemic, although she admitted that there has definitely been an uptake in “COVID-related large-scale class actions work against the cruise lines”, relating specifically to passengers contracting COVID-19 on cruise ships, leading to death and serious long-term injuries resulting in class action suites. This can be seen in the action against Carnival and Princess Cruise Lines, which followed an inquiry and a report into the 663 COVID-19 cases onboard the Ruby Princess.

“In some defendant firms, the insurance team handles these cases, and the plaintiff personal injuries firms handle the applicant side of things,” Ms Naiman said.

Mr Burgess, however, said that the increased activity in the space during COVID is likely also due to a candidate-short market.

“Anecdotally, it is likely that not enough junior lawyers were created during COVID, when there ought to have been a reduction in the number of claims in certain areas based on a lack of movement, transport and resulting injuries,” he said.

“Junior insurance lawyers are often trained to work on such files, cutting their teeth on smaller matters. Firms have certainly struggled to service the resulting influx of claims post-pandemic.”

Mr Wood also emphasised that in the last three years, firms have been forced to rapidly “adopt new behaviours and ways of doing things”.

The whole industry has had to adopt a more flexible way of operating, some with more success than others. Combine this with the current shortage of talent and the added pressures of rising salary costs during a time of high inflation and increasing costs, it’s not surprising that we are continuing to see so much movement in the market,” he said.

“Talent attraction and retention are key issues — after all, it’s pretty hard to do good work for great clients without the right people. We constantly engage with our people to work out what is actually important to them and invest and adapt where we can to deliver this.”

Insurance market likely to grow amid recession

But while talent attraction and retention remain challenges for both BigLaw and specialised insurance firms, positive growth was predicted in the insurance space back in 2022, despite legal, regulatory and socioeconomic issues facing insurers across the globe.

These issues will include environmental, social and governance (ESG) concerns, the cost-of-living crisis affecting insurance prices, and a continuing “hardening market”, according to Mr Wood, who added that businesses are also under pressure with increasing costs of employment and operation and will “feel the squeeze if their insurance programs aren’t well designed”.

“The projected increase in frequency and severity of natural disasters, along with increasing reinsurance costs, inflation, supply chain disruptions, and labour shortages, are likely to impact premium pricing. As costs of living continue to increase, insurance affordability (and availability) will likely be a growing challenge for many households and in the country. I think that the insurance sector will continue seeing greater scrutiny in relation to good governance and compliance with regulatory reform, with continued pressure on businesses to go beyond ESG box-ticking compliance,” he explained.

“For firms operating in the insurance space, we know that while ESG and pro bono [have] always been the right thing to do, it is likely to become a requirement for large private sector clients. We have worked hard with our pro bono leader, Jilly Field, to be able to meet that requirement while also quietly doing work in the sector for people who need legal assistance.

“History also shows us that as economies tighten, the work from our core sector clients — largely, insurers — increases. We are focused on meeting existing demand and are planning, positioning for that increase and continuing to plan for the future. As any manager of a private practice law firm will tell you, our margins aren’t anything like those in the commercial litigation or corporate sectors, for example. But it’s certainly a practice area where there’s a lot of work for those who are built for it.”

This also means that the insurance sector is often affected by major catastrophes and, as such, can be hard to predict.

“Insurance seems to move at its own pace,” Mr Burgess emphasised.

“At present, the insurance market for lawyers shows no signs of abating, and even if it does, there is enough pent-up demand for lawyers that it will likely take some time to settle.”

In fact, during the global financial crisis in 2008, insurance was the “only genuinely burgeoning area of law” — something which Ms Naiman said supports the notion that in the face of a recession, insurance will “become very buoyant”.

Insurance work is reflective of market conditions and is countercyclical. Traditionally insurance work picks up when the economic conditions worsen. As the economy has been hit with inflationary/cost-of-living pressures, insurance law has picked up. There has also been growth in cyber-related insurance as well as employer liability work.

“[Only] two things could impact the market negatively — firstly, any changes to legislation affecting what and how applicants can claim (which is unlikely as the major changes in legislation to the insurance space affecting CTP and workers compensation law have already happened), or secondly, the larger insurers deciding to bring all or some of the substantive legal work in-house — but we are unlikely to see a fall in this space,” she added.

“On the contrary, I think with the ongoing large-scale cyber issues, growth in injuries-based class actions, growth in employer liability insurance, and travel insurance, we are likely to just see this area continuing to grow.”

Mr Murphy echoed a similar sentiment — and said that the insurance market is likely to “continue along the same growth” amid a recession, and if anything, “it may grow”.

“There is a perennial issue with a lot of full-service firms that insurance can be treated as the poor cousin during poor times due to the fact that charge-out rates are generally lower. Those rates are always very welcome during lean times when insurance matters continue,” he added.

“In a tougher market, there are always firms that will look for opportunities for growth. Some firms grow the most during a downturn and then ride the wave when the economy changes.”