Compensation city

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Over the past 30 years, Bristol has become the hub of the UK legal expenses insurance sector, bringing prosperity but also sparking rivalries between its three main players. Insurance Times looks at their colourful history and finds out how they are planning to cope in a rapidly changing market

Bristol is no stranger to controversy. Perched on the point of the Severn estuary, the city became rich on the back of the slave trade; and Bristol Rovers FC’s Goodnight, Irene is perhaps the only football chant in the world with a reference to morphine. Now, with the coalition government placing the blame for Britain’s compensation culture squarely at the door of legal expenses insurers, Bristol is once again in the spotlight.

As home to DAS, Allianz Legal Protection and ARAG, the city is the hub of this lively sector, and has played host to some dramatic rivalries. If anything, these have become more intense in recent years. DAS, the largest legal expenses insurer in the UK, saw profits dive from a £9.2m profit in 2008 to a £13.5m pre-tax loss in 2009. The reason, says DAS UK chief executive Paul Asplin, was a massive rise in employment tribunals in 2009. In 2009-10, the number of accepted claims jumped 56% on the previous year to 236,100. Multiple claims increased even more steeply, with a 90% rise on 2008-09. Meanwhile, DAS’s arch rival ARAG has seen a boost in business, with gross written premium rising from £16m in 2009 to £25m in 2010.

And now, with Lord Jackson’s proposals on civil litigation costs likely to be accepted by the government, the picture may change once more. DAS, ARAG, and Allianz Legal Protection are all heavily involved in after-the-event (ATE) insurance, which Jackson hopes to scrap. ATE makes up 30% of DAS’s business and profitability, 50% of ARAG’s business, and although Allianz refuses to release figures, Peter Dobie, head of its legal expenses division, says that the insurer’s exposure is “more than 50%”.

In fact, Allianz’s 2009 annual report proudly boasted that Allianz Legal Protection “has a leading position in the after-the-event market”, while its before-the-event (BTE) policies are “written on a strictly controlled basis”. Allianz admits that Jackson will mean “significant changes to the business model and market if implemented”.

With major international insurers behind them, all three businesses are confident of weathering the storm. Asplin says that it is not so much DAS, ARAG and Allianz Legal Protection that will be affected but smaller players – at least some of whom, he adds ominously, will face closure.

But clearly Bristol’s cottage industry is facing changing times, and rivalries in the West Country could be about to become more intense than ever. Which begs the question: how did DAS, ARAG, and Allianz Legal Protection come to be living side by side like this in the first place?

An accident of history

Although legal expenses insurance had been a force in Europe since the Second World War, a 13th-century law prevented anyone from sponsoring another’s court appearance in Britain. When the law was repealed in 1967, German legal expenses insurer DAS saw an opportunity in the market and took it.

“That legal expenses happens to have this Bristol base is an accident of history,” says Allianz’s Dobie, a DAS veteran from the 1980s. DAS set up shop with the Phoenix Assurance Company, which moved from London to Bristol in the 1970s.

Initially the venture was not a success in the UK. “It was a little slow getting off the ground,” says Asplin, who joined DAS as a 19-year-old junior underwriter in 1978. “We didn’t just have to sell a product – we had to create a market.”

But the same year that Asplin joined, the company had its big break, when it developed uninsured loss recovery (ULR), a low-cost add-on to private motor policies. “That got the whole thing going,” Asplin says. “It saved the broker the hassle of recovering third-party losses and provided a new source of income from an existing base. Sales were governed by the number of brokers you could see in a day.”

Since then, says Asplin, DAS has grown in size every year except for 1995, when the company lost a major client. Even in 2009, says Asplin, when the company lost more than £13m, it continued to grow. From working out of an office in another insurer’s building, it is now the UK’s pre-eminent legal expenses insurer, with 600 employees.

Three tribes

But the company’s progress has not always been smooth. In the 1980s, several members of the senior management moved to Allianz, and persuaded the insurer to set up its legal expenses division in Bristol. In 2005, DAS assistant general manager Tony Buss led another management team departure, setting up a UK office for German company ARAG in Bristol. “I think you could describe it as an unpleasant and stressful time,” Asplin says.

Asplin and Buss are so reluctant to talk about the split that both sides signed confidentiality agreements on the subject. Six years on, the wounds have not healed. “At a personal level, the ARAG managing director and I don’t tend to see each other often. Let’s put it that way,” says Asplin.

The management walkouts of the 1980s and 2005 have created three very different firms. DAS is still very much the grande dame of legal expenses insurance. From the sixth floor of its headquarters in the heart of the city, you can see across Bristol – on the horizon is Clifton, often described as the Hampstead of Bristol, where Buss set up ARAG’s offices in an elegant townhouse in 2006, growing in five years from a handful of staff to 50 employees. Allianz’s legal expenses division, meanwhile, is housed in an anonymous industrial estate in Bristol’s outer suburbs.

With many of the major players working in the same city, and also having worked for the same firm, Bristol’s legal expenses insurance market is peculiarly intimate. “We all know each other really well,” Dobie says. “It’s certainly competitive, but it’s friendly competitive.”

Buss is more guarded when asked if it is a friendly rivalry: “I have to be very diplomatic. I think it’s a rivalry.” This reflects the international legal expenses market. “DAS and ARAG are arch rivals,” Buss admits.

Changing landscape

The rivalry is understandable. DAS is the world’s largest legal expenses insurer, and ARAG is snapping at its heels in the number two spot.

And DAS, ARAG and Allianz are not just competing for business, but for local talent. Asplin’s decision to sponsor Bristol City in 1999 was, he says, driven by the need to raise his firm’s profile among financial services personnel.

Indeed, the concentration of three of the UK’s leading legal expenses firms in Bristol has drawn in insurance professionals from across the country. “Certainly there’s a pool of talent,” Dobie says. “No question: we’ve got the lion’s share of the legal expenses talent around Bristol.”

While Asplin and Buss are local boys, Dobie himself moved down from his native Newcastle to work in legal expenses.

Despite the differences between them, all three men share a passion for the market they work in and have helped create. “There weren’t any rulebooks,” Dobie says. “We really had to create stuff from scratch and that’s just enormously exciting. You don’t get those kind of opportunities very often.”

This year, the rules look likely to change again. The consultation period for Jackson’s proposals on civil litigation costs comes to an end on Monday. It has, to some extent, brought even bitter rivals like DAS and ARAG together, under the umbrella of the anti-Jackson campaigning group the Legal Expenses Insurance Group.

But even here, the firms are taking quite different approaches.

While ARAG and DAS are campaigning vigorously against the proposals, Allianz’s Dobie is more sanguine. “We take a different, more philosophical view,” he says. “We’re not here to shape what a market should look like. Our job is to understand the risks the market offers. It’s just changing. It’s just different.”

Bristol has long proved itself adept at change: surviving the end of the slave trade in the 19th century and more recently the move of the dockyards from the city centre to the suburb of Avonmouth. A walk along the waterfront at night, where bustling bars and restaurants have taken the place of the old warehouses, you can see for yourself Bristol’s ability to adapt. This is good news for an industry that can only be certain of change in the coming year. IT