Revisiting ABS Models in a Consolidating Motor Insurance Market

Consolidation continues to reshape the personal lines insurance market. Recent acquisitions and organic growth have created an unprecedented concentration of market share and with it no doubt, new questions about how best to leverage scale.

With that scale typically comes a renewed focus on synergistic value – internal transformation, rationalising cost bases and leveraging increased scale to meet investor, shareholder and stakeholder expectations. It’s at this stage in the post-acquisition playbook that acquirers also often begin to explore where deeper integration might unlock value across their claims supply chains and legal services are a natural part of that consideration.

Vertical integration may look compelling on paper – but in legal services, success depends on understanding what ownership really demands.

The question of legal capability ownership isn’t new. Several insurers already operate Alternative Business Structures (ABS), or have done so in the past, as a means of aligning service, oversight and income opportunity. Historically, these models offered an appealing route to capture margin and secure control over claims-related revenue streams and customer outcomes.

However, the commercial landscape has changed in recent years. The introduction of the OIC Portal, increase in Small Claims Track and Whiplash Tariffs, together with the extension of Fixed Recoverable Costs has led to a subsequent reduction in recoverable income, diminishing some of the financial advantages that once underpinned ABS models. At the same time, the pool of scale, insurance-aligned claimant law firms has narrowed, creating a more limited field of external partners with the capacity, expertise and appetite to support high-volume motor work.

As consolidation further concentrates market share and gives insurers greater command of claim volumes, conditions may again prompt a fresh evaluation: Does today’s environment strengthen or weaken the case for direct ownership of legal services?

On paper, the idea remains compelling. An ABS which enables non-lawyer ownership of a law firm can appear to offer a neat solution: protect access, align incentives, enhance oversight and capture additional margin. Yet legal services behave differently to other parts of the supply chain – operationally, financially and culturally. Beneath the surface, ownership introduces a distinct set of obligations and exposures. Any insurer considering this route needs a clear-eyed view of what it truly entails.

In my experience, those obligations extend far beyond the initial business case, touching every part of how a legal service operates and delivers. The following areas are especially important to explore early.

Working Capital & Cash Intensity

Legal services, particularly motor personal injury, are inherently working-capital intensive. Claim portfolios build gradually, with cashflows lagging well behind new claims opened. It can take several years before a steady state is reached between settled cases and new instructions.

With personal injury reforms compressing fee income, the margin available to absorb these funding cycles has tightened, heightening the importance of capital discipline. The key question is not only whether an insurer can deploy cash to support this model, but whether it should – and whether that capital might generate greater value elsewhere in their business.

Capability & Specialism

Not all legal services are created equal. Motor claims cover a broad spectrum of complexity and while some elements can be systemised, others demand deep expertise and immediate, highly skilled response.

Serious injury cases in particular require access to specialist practitioners with experience across fields such as brain injury, spinal trauma and amputation. The ability to reach these highly vulnerable clients quickly, anywhere in the UK is essential to ensure early rehabilitation and continuity of care.

Any in-house capability must be able to deliver this breadth and depth of service, especially where policies promise access to representation under Legal Expenses Insurance (LEI). Control without capability risks undermining both product performance and customer outcomes.

Dual Regulation & Governance

Ownership of a law firm by an FCA-regulated insurer introduces dual oversight under both the FCA and the Solicitors Regulation Authority (SRA). While the SRA’s outcomes-based framework can complement existing governance, it also extends approval requirements to all material changes in ownership structures and directorships, including those at Hold Co level.

In my experience, this is often underestimated. These approvals can create unexpected friction and delay in progressing wider corporate activity, particularly where the law firm is part of a regulated group. Early alignment between legal and corporate governance frameworks is essential to ensure the ABS can operate without inadvertently slowing or complicating business change elsewhere in the organisation.

Regulatory & Legislative Change

Most industries are subject to and shaped by government-led legislative reform and evolving regulatory requirements. What’s particularly true of the legal sector, especially personal injury, is the sheer volume and pace of change it has and continues to face.

Successive shifts in legislation and regulation have had fundamental impacts on law firm business models, each demanding major transformation projects simply to remain compliant and commercially viable.

With the unknown impacts of the MoJ Taskforce and other reviews due this autumn, any owner of an ABS must be prepared for continued investment of time, energy and resource to navigate what will likely be continued volatility in the sector.

Looking further ahead, it’s impossible to ignore the influence of the judiciary and the courts, where new precedents can emerge outside the visibility of any horizon-scanning activity and have the potential to reshape practice overnight. The very recent Mazur v Charles Russell Speechlys LLP case is a perfect case in point, requiring immediate adjustments in litigation approach across some parts of the legal sector.

It’s not the changes themselves that pose the greatest threat (it remains a testament to the profession that we continue to adapt with positivity, innovation and professionalism), but rather the need to ensure ABS owners have access to the technical skills and specialist insight required to interpret evolving obligations, respond at pace and mitigate the opportunity costs that inevitably arise alongside.

A Decision Demanding Careful Evaluation

In a consolidating market, vertical integration may appear a logical progression — a route to secure supply, capture margin and align service with strategy. Yet legal services present unique demands that differ markedly from other parts of the claims ecosystem.

At a time when consolidation is driving an appetite to benefit from economies of scale, adding legal services to the list of considerations is understandable – but it’s essential the consequences are well understood.

The sheers range and complexity of considerations involved, from funding and regulation to capability and resilience, means just because you can, doesn’t always mean you should. Sustainable, long-term success is dependent on knowing the difference.