Legal expenses insurance – how brokers can sell “peace of mind”

With UK businesses still reckoning with the ongoing sting of inflation, it might be expected that brokers looking to sell ancillary insurance products are facing customer resistance. One sector that is firmly rebuffing this expectation is that of legal expenses insurance (LEI), as evidenced by the strong results recently posted by leading LEI provider ARAG.

The group’s 18.5% GWP increase was largely attributed to growth in its before-the-event (BTE) LEI and assistance business, with underwriting director Dave Haynes (pictured) noting that the reason for this boost was simple – “businesses cannot afford not to have it”. Cost-of-living pressures are stinging businesses but they’re also sharpening business leaders’ focus on the risks that could feasibly put them out of business if unprotected.

It’s not an expensive insurance coverage, he said, but it is a critical one particularly given the cost and time currently involved in fighting a legal dispute. And over the course of the last 17 years, ARAG has seen the discourse around BTE services change significantly, moving from being an after-thought for brokers to being an essential part of their toolkit.

The development of legal expenses insurance

Touching on how this evolution has occurred, Haynes emphasised the importance of increased education about what LEI is and how it protects UK businesses. ARAG is committed to constantly training and educating its brokers around LEI in order to empower them to have informed conversations with their clients. And with that training, brokers feel more confident selling the coverage, which has been a key driver of why it has developed into such a readily accepted product.

“As a result, we’ve seen that more businesses see the real value in buying legal insurance and we’ve seen an uptick in interest,” he said. “We rely heavily on our brokers and intermediaries to sell the coverage and to promote this as a real value add for any business. From my perspective, every business should buy this. It’s a no-brainer because it’s not just about the protection itself, you get access to a wide range of online legal documents, legal advice, access to tax helplines and counselling and a whole array of other services. So, legal insurance is essentially about buying peace of mind.”

The tribunal backlog – an update

Integral to ARAG’s education of the wider market has been its continual updates on the ongoing tribunal backlog, with the latest data from HMCTS revealing that there are currently over half a million cases in the employment tribunal system. There were delays in the court system even pre-COVID, he said, but it got worse during the crisis and it’s still clocking up further.

“It’s now being suggested that it can be up to a year before you can even get to a preliminary hearing,” he said. “That’s causing problems for individuals who are seeking to exercise their legal rights if they feel they’ve been unfairly dismissed or unfairly selected for redundancy or facing another employment problem. That length of time is itself a barrier to these individuals accessing justice. But also from an employer’s perspective, it means this dispute is hanging over them for that period of time. It’s not great on either side of the fence.”

Finding the best path through a legal dispute

While ARAG provides legal insurance for both individuals and businesses, he said, the bulk of what the group does is focused on defending employers – both big and small – with respect to employment problems. Where the provider lends significant value to businesses is in offering advice and support to help them navigate employment disputes without necessarily having to join the tribunal ‘queue’.

“We look to find people the best path through a dispute,” he said. “Very often when an employee is being advised by a lawyer or a union that they may have to wait up to 12 months before they’ll actually get before the tribunal, then they do want to just move on. They want to get a new job and they don’t want a dispute with a former employer hanging over them. And the employer wants to move on as well. In those cases, that often lends itself to more negotiation and early settlements.”

LEI – about more than just coverage

A core part of what ARAG does is provide expert legal advice, which is particularly relevant to small businesses which might not otherwise be able to afford that kind of support. In addition to this legal help and assistance, ARAG does provide representation in court, he said, but that tends to be a last resort as it’s usually faster and more effective to find alternative resolutions.

“We work with our clients to provide legal advice at the outset, advising what their rights are, letting them know the timeframes involved, and giving them insight into where they stand legally,” he said. “Important to note is that costs aren’t usually recoverable. So, even if the employer goes to the tribunal and is successful, they still have to fund their own costs.

“That is why legal insurance is so valuable because to go to tribunal for a two-or-three day hearing, with the prep needed for that, can cost several thousand. So, even an employer who’s in the right and has done nothing wrong could still be on the hook for a lot of money. We take a pragmatic approach on a case-by-case basis as to whether an employer might be better off trying to come to a settlement with an employee.”

Of course, some employers want to take the tribunal route, he said, because they worry that if they’re seen to pay off non-deserving employees then it will set an unhealthy precedent. On the other side of the fence, some employees can demand their day in court and don’t mind how long it will take to get that. In those cases, there’s nothing to do but settle in for the long haul and wait for the due process to take its course. On balance, however, ARAG sees more cases settled than going to tribunal.

“I think getting employers that legal advice upfront, right at the outset, is very helpful,” he said. “It’s reassuring for them to know we can advise on their rights, on the process, and what the outcome will typically be based on what they’ve told us. At least then, the employer is reassured that they do have some support and that their legal fees are already taken care of. That goes back to legal insurance really being all about peace of mind.”