The after the event (ATE) insurance market is an odd one. There’s no other way to describe it. It behaves like insurance only in the strictest sense in that it insures the holder of the policy against legal costs.
But beyond that, it starts to look like the insurance version of quantum physics where reality is very weird. Things don’t make sense. Things like not charging all the premium until the case is concluded, paying premium in stages, being so niche that it feels like a legal rather than an insurance product or being a commercial insurance market that has very few brokers operating in it.
But oftentimes the best things can be found in the weirdest places. While still strongly associated with the days of personal injury ambulance chasing, the ATE market is one that appears to have come of age, shaken off its teenage misdeeds and is set to play a more prominent role in litigation risk management. And where there are opportunities in risk management, there should be opportunities for brokers.
But before we all jump on the ATE gravy train, we need to understand what this market is, how it operates, where it came from and, crucially, where it is headed. Commercial ATE insurance covers a range of disputes from insolvency to shareholder disputes, indemnifying the holder against their opponent’s legal costs if a case of lost or discontinued and can provide cover for the holder’s own costs and counsel fees. It initially appeared in the wake of the 1999 Access to Justice Act (see box below right) which, in short, introduced ‘no win, no fee’ agreements to civil court cases. ATE insurance, which at the time was a recoverable cost from the opponent, was employed to allow individuals to bring cases that they may not otherwise have been able to. The Act seemed to do what it said on the tin. But then the Jackson reforms, or the Legal Aid, Sentencing and Punishment of Offenders (LASPO) Act 2012, came along and everything changed (see box below). “LASPO and the qualified one-way cost shifting it introduced nearly killed the ATE market because the cost shifting had meant a claimant could litigate, to a certain extent, risk free,” says Iain Stark, partner at Weightmans.
“So everyone thought there was no need for ATE, but that was wrong.” All over? The idea that ATE was dead had, of course, a huge impact on the host of providers that had sprung up (often offshore) to take advantage of the personal injury opportunity. “Post LASPO, some of the insurers, the offshore, unrated ones, went bust. The market wasn’t great,” says Mohsin Patel, director at litigation funding experts, Factor Risk Management. He says that some of these operators were underwriting hundreds of cases a month on small limits of up to £50,000 and almost overnight, that income was gone. “Some have found that the business is just no longer there, and it was profitable business. So since then ATE insurers have spread their wings a little,” he adds. This spreading of the wings was taking place pre-LASPO, as Rocco Pirozzolo, underwriting director at Harbour Underwriting, explains. “Law firms were crucial to the development of the ATE market, which started to emerge out of bodily injury cases into more run of the mill commercial disputes.
“An insolvency practitioner could be appointed but there was no money in the liquidation, so lawyers were forced to work under no win, no fee arrangements and the ATE insurance was contingent, it wasn’t payable until the end. “It was the genie coming out of the bottle – lawyers realised they had to find a new solution for institutional clients.” Since then, ATE has emerged into the world of commercial litigation and more and more are waking up to the opportunities it presents in an increasingly litigious society. Where once it was the kind of policy that anyone with the right permissions could flog all day long, it is now a very specialist field that requires a significant amount of legal acumen to exploit fully. But while it is very legalistic in its language and usage, there are still opportunities for insurance brokers to get involved. Experience Brokers like Jane Jones at PIB, who has more than two decade’s experience in the litigation funding world. PIB sells ATE policies to legal firms and litigation funders but also directly to commercial clients via the network of brokers in the group. “You do need a certain amount of experience and know a little about the law,” she says with understatement. “My background is as a lawyer in private practice and a lot of the underwriters in this market have a lot of legal experience too.”
Having said that, she doesn’t believe that a lack of legal expertise should put enterprising brokers off exploring the market. “Commercial brokers might have an opportunity here as they have that direct relationship with the litigant,” she says. “If they’ve got that trusted relationship with their client, make it known that this product is available and that they have access to specialists, then I think that there are certain benefits.”
The market is certainly lucrative enough for a broker to justify buying in the expertise. If they referred one decent £1m dispute, the potential revenue from fees and the premium is huge Phil Bellamy
This knowledge of the law and access to the legal community must be combined with more traditional relationship-building skills, which is what Howden says underpins its own approach to ATE.
“Brokers are all about relationships,” says Julia Mahoney, divisional director for Howden’s restructuring and resolution team. “What we are doing is all about relationships with law firms and litigators but also directly with commercial clients.”
She says it is a 50/50 split between polices sold to legal firms and those sold direct to clients with limits ranging from around £100,000 up to several million pounds. But at Howden, ATE is more than a standalone product – it forms part of a wider bank of products and services designed to support litigants. “Litigation Risk Management is what we call it. It goes way beyond just ATE insurance, introducing funders and placing own side cover for both law firms and our clients.” Like many, she stresses that this is not necessarily a market for the everyman broker. “It is a niche area and if you are going to add value, you need to be able to be involved in the whole process – reading through pleadings, getting to grips with the case and often going back to the solicitor to pursue more information.” Which, with all due respect, doesn’t sound like a fun day at the office for brokers more comfortable with the cut and thrust of trading. But for those willing to make the effort to explore this market, the opportunities are there.
Phil Bellamy of Tibbington Consulting, a firm that advises insurers, reinsurers, MGAs, brokers and litigation funders on ATE, has been in this market since its inception back in 2000 helping DAS to set up one of the first ATE providers. And while he has seen the market develop from the ‘dodgy’ sector it was to the rather sophisticated market it is today, he believes that commercial ATE always stood out from the crowd. “Commercial ATE has never been a dodgy market. There wasn’t really the commission element in those sorts of deals, and it is not a build it high and sell cheap product,” he says. But he believes there are also opportunities for brokers who don’t want to go full specialist but still want to explore the possibilities of ATE.
"What I would do as a regional broker, but with advantage of the knowledge I’ve got, is set up an agreement with two or three commercial lawyers, where I earn 10% of their fees. “When the solicitor refers that case to an ATE broker who I also have a referral agreement with, I could earn 5% of the broker’s commission.”
He believes that this kind of arrangement would satisfy all parties as the client gets a solution, the lawyer is happy to have been referred the case as is the specialist ATE insurance broker.
“The market is certainly lucrative enough for a broker to justify buying in the expertise. If they referred one decent £1m dispute, the potential revenue from fees and the premium is huge.”
One regional broker who is making a foray is George Stubbs Insurance Brokers. Group managing director, George Stubbs, has brought some legal expertise into his business to ensure they have the necessary knowledge to sell ATE insurance effectively. “There is nobody promoting ATE in Scotland and we want to become the go-to broker for this,” he says. He says that while he is expecting a bit of a learning curve, they are starting off in the niche area of insolvency and expect to expand and grow from there by targeting specialist legal firms. The first step is to partner with a global legal firm with a local presence and specialist MGA Harbour Underwriting bringing the lawyer’s clients to the insurance expertise of Harbour and its ATE products. “If you get the lawyers switched on to it, they will probably have a minimum of 10 cases in a year, so if you develop relationships with 10 lawyers, you could have 100 cases a year.” Today’s ATE market is niche, sophisticated, time intensive but, crucially, with the right expertise and approach, could be very lucrative with commissions ranging from anywhere between 10% to 30% on premiums that can run into millions of pounds. But to get access to that possibility, investment and a long-term approach will be required.
With credit to Martin Friel & Insurance Age