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16 July 2013 Insurance

Going global: Law firms extend their scope

In the previous issue, Intelligent Insurer looked at how the landscape for law firms specialising in re/insurance is changing. Some of the areas that have traditionally delivered healthy pots of fees to law firms, such as large contractual disputes, have fallen by the wayside.

This could well change again in the future. In fact, John Nonna, partner at US law firm Patton Boggs, makes this exact point in an article looking at how new risks the industry is moving into could ultimately lead to more disputes in the future.

But in the meantime, law firms are adopting different strategies to try to ensure they remain relevant to their clients and are able to add services that add value to what have become far more robust and well resourced in-house legal departments in recent years.

Nick DiGiovanni leads the reinsurance and insurance litigation groups in law firm Locke Lord. He says that his practice has looked carefully at the range of services it offers clients and how these are packaged and priced.

“Because our firm has strong practices in both the contentious and non-contentious sides of the industry, we have been able to partner with our clients to offer bundles of high level services as a full service provider with the necessary specialties to offer significant value to our clients,” DiGiovanni says.

“Firms like ours that are able to offer these high level, full service options will benefit from what might otherwise be seen as a competitive barrier.”

He says size is increasingly important in this competitive landscape. He has seen a big change in the type of firms he is competing with and some players have chosen to exit the market completely.

“Firms with smaller or less robust practices have exited the insurance/reinsurance dispute sector, or have downsized their practices,” he says. “Some of the remaining firms are regional players with lower cost structures.

“Others have become more creative in devising alternative fee arrangements that will be attractive to rate-sensitive clients. Firms have also stepped up the additional services offered to clients, such as in-house seminars tailored to the client’s specific needs (including arranging for continuing legal education credit), secondments to clients, and even more creative fee structures.”

Global expansion

One strategy that has been commonly used by US law firms in recent years is to expand their presence overseas. Several have targeted the UK market in an attempt to tap into the large insurance and reinsurance sector based there, including the many businesses operating in and around the Lloyd’s market.

David Kendall, partner at Edwards Wildman Palmer UK, says this has been driven by the increased globalisation of the insurance industry as much as by a desire to seek new income streams by the law firms.

“The need for this broader international offering has resulted in insurance law firms opening offices in the major centres, including London, New York, Hong Kong and Singapore, as well as in emerging markets such as Latin America,” he says.

Locke Lord also falls into this camp. In February 2012, it opened a new London office with 32 lawyers, which included an insurance and reinsurance group. “The move reflected our commitment to the Lloyd’s, London and global re/insurance markets,” says DiGiovanni.

In March 2013, the firm opened a Hong Kong office, adding 12 new attorneys with a view towards further expanding its insurance and reinsurance practice to the far east markets.

Sometimes the expansion of a global reach has been achieved through mergers. Several notable deals have broadened the reach of large law firms.

It was a few years ago but the tie-up of London-based firm Kendall Freeman with Boston-based US firm Edwards Angell Palmer & Dodge is one example. That between US-based firm Hogan & Hartson and European-based firm Lovells to create Hogan Lovells in May 2010 was another.

Other US firms have targeted the UK market in more direct ways. As well as Locke Lord’s new office, US firm Goldberg Segalla launched in London in 2012 after hiring reinsurance heavyweight Clive O’Connell, the former head of Barlow Lyde & Gilbert’s commercial risk and reinsurance practice.

But it is not all one-way traffi c. When Norton Rose, the 219-year-old London law firm, completed its merger with US firm Fulbright & Jaworski on June 3, the deal represented its fifth tie-up in just three-and-a-half years.

The firm will have taken its turnover from £314 million spread around a handful of international locations into a global giant operating in 55 locations around the world and revenues approaching £1.3 billion.

And while the firm’s new presence in the US is making all the headlines at the moment, its 2010 union with Australia’s Deacons was just as important, giving it a strong foothold in the lucrative and fast-growing markets of Asia.

Michael Mendelowitz, partner at Norton Rose based in the UK, says the US deal will make the firm a truly global player. But he says the growth of the firm has very much matched what clients need in an increasingly globalised economy.

“The need for this broader international offering has resulted in insurance law firms opening offices in the major centres, including London, New York, Hong Kong and Singapore.”

“Our strategy has been driven mainly by clients and what they want. We have a lot of clients in energy, for example, which is a very global sector, but sectors such as insurance and reinsurance are also more global than ever and they will benefit too.”

He adds that it is not just about geography, but expertise. Linking up with Deacons, for example, brought in more claims expertise and stronger links into some areas of the London Market, helping grow the claims and litigation practices in the process.

Mendelowitz believes the future is global for law fi rms. “We have seen some clients downsizing in western markets and putting capital to work in emerging markets. That says it all and the fact is that we need to be in the markets where our clients are.”

No magic bullet

Geographical expansion for the sake of it is not always necessary, however. Nonna says he picks up a lot of work from London without an office there, just visiting regularly to meet with clients.

“The reinsurance industry is global and we have always picked up work from London,” he says. “You don’t have to have an office there. Our clients are there and we add value.”

And DiGiovanni believes it is more about looking at what clients want and delivering that. Sometimes that will involve securing a global presence but sometimes it will be more about acquiring the correct expertise in the best way and making it available to clients. And if the industry has taken a knock in recent years, he is optimistic about the future.

“We see significant global growth in the industry from conventional sources of capital as well as new and innovative sources. We believe that our global clients will look to partner with a law firm that is equally global and sophisticated in the insurance and reinsurance industry.

“We see a continuing shift to a value-based billing approach for certain classes of business with an increased emphasis placed upon more efficient and expedient handling of contested claims.

“Given that insurance and reinsurance markets are cyclical, I expect an upswing in reinsurance litigation and arbitration. Historically, soft markets have often led companies to write poor risks, leading to disputes down the road. Soft market conditions prevailed over the past several years. As a result, the stage may already have been set for disputes.”

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