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Busisness Case for Good Complaints Handling-Final-24-01-14 Flipbook PDF
Economic Insight Business Case for Good Complaints Handling Privileged and confidential 4 1. Executive Summary This repo
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The Business Case for Good Complaints Handling in Legal Services Report for the Legal Ombudsman
November 2013
© Economic Insight Ltd 2014
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Economic Insight Business Case for Good Complaints Handling
Privileged and confidential
Document contents 1.
Executive Summary ........................................................................................ 4
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Introduction ................................................................................................... 8 2.1. Introduction to our study
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2.2. Background context
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2.2.1. Defining good complaints handling .............................................................................................................................. 9 2.2.2. Evidence on the scope for improvement ................................................................................................................ 10 2.3. Key objectives and aims of our study
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Our methodology and approach .................................................................. 12 3.1. Conceptual framework for developing a business case
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3.1.1. Overview of framework ................................................................................................................................................. 13 3.1.2. Application of our framework ..................................................................................................................................... 13 3.2. Our methodology for developing the Business Case
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3.2.1. Description of the financial model ............................................................................................................................. 14 3.2.2. Stylised law firms .............................................................................................................................................................. 15 3.2.2.1. Pen portraits of stylised firms .................................................................................................................................. 15 3.2.2.2. Base case data for stylised firms .............................................................................................................................. 16 3.3. Developing modelling scenarios
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3.3.1. Central case scenarios ..................................................................................................................................................... 17 3.3.1.1. Sole practitioner ............................................................................................................................................................. 17 3.3.1.2. Small sized firm ............................................................................................................................................................... 17 3.3.1.3. Medium sized firm ......................................................................................................................................................... 18 3.3.1.4. Sensitivity analysis ........................................................................................................................................................ 18 3.3.2. Review of existing studies and evidence ................................................................................................................. 18 3.3.3. Qualitative interviews with law firms ...................................................................................................................... 18
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The Business Case.......................................................................................... 19
4.1. Review of existing evidence and analysis
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4.1.1. Evidence on key sources of financial costs and benefits .................................................................................. 20 4.1.2. How the costs and benefits can vary ......................................................................................................................... 20 4.1.3. Methodologies for estimating costs and benefits of complaints handling ................................................ 21 4.1.4. Existing quantitative evidence .................................................................................................................................... 22 4.1.5. Codification of papers reviewed ................................................................................................................................. 22 4.2. Expert opinion of Dr Andrew Mell
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4.3. Key findings from our qualitative interviews
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4.4. Results of modelling analysis – central scenarios
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4.4.1. Sole practitioner results ................................................................................................................................................. 24 4.4.2. Small sized firm results .................................................................................................................................................. 25 4.4.3. Medium sized firm results ............................................................................................................................................. 25 4.4.4. Summary of results and sensitivity analysis ......................................................................................................... 26
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Economic Insight Business Case for Good Complaints Handling
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4.4.5. Net benefits relating to tier two complaints .......................................................................................................... 27 4.5. Qualitative assessment of impact for barristers and ABSs
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4.6. Consideration of wider industry impacts
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4.6.1. Approach to scaling up ................................................................................................................................................... 28 4.6.1.1. Differentiating between competitive effects and wider market impacts ............................................... 28 4.6.1.2. Uncertainty as to the number of firms that would make the assumed improvement ...................... 29 4.6.2. Industry wide benefits .................................................................................................................................................... 29
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Conclusions and key findings ...................................................................... 31 5.1. Economic theory and evidence
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5.2. Economic Insight financial modelling
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5.3. Potential for wider benefits
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Annex A - Literature review ................................................................................... 33 Annex B – Dr Andrew Mell opinion ...................................................................... 60 Annex C – summary of complaint data ................................................................ 63 Annex D – retention effect modelling ..................................................................65
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Economic Insight Business Case for Good Complaints Handling
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1. Executive Summary This report sets out the commercial business case for good complaints handling in the legal services industry; and provides a quantification of the likely financial impact both for law firms, and across the industry more widely.
In summary, our study – undertaken on behalf of the Legal Ombudsman – finds that: (i)
There is a robust business case for good complaints handling in the legal services industry. In particular, law firm profitability could increase by between 2% and 3%.
(ii) Although subject to uncertainty, there could also be a wider net financial gain across the industry as a whole. This could be up to £80m – in net present value terms over 10 years, where this benefit would be shared between firms and consumers. (iii) Our findings are based on a range of evidence, including: existing academic and empirical studies, a range of financial data; and interviews with providers of legal services.
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Economic Insight Business Case for Good Complaints Handling
This report sets out the business case for good complaints handling in the legal services industry
We have applied a commercial approach to developing the business case
It is well established that reputation or brand value can generate increased profitability for firms across a range of markets. Consequently, to the extent that how firms manage customer complaints can impact their reputation, then clearly one would expect there to be natural commercial incentives to have complaints handling processes that meet customer needs. Furthermore, given the importance of ‘reputation’ with respect to the provision of legal advice, one might expect these incentives to be particularly relevant to legal services. However, research by the Legal Ombudsman published in 2012 1 found that there is significant scope to improve complaints handling within the industry (although it is important to note that the study also found examples of good practice). In particular, the Ombudsman’s study found that many of the issues that led consumers to complain in the first place were themselves features of the complaints handling process. Given that there are good ‘in principle’ reasons to believe that the commercial incentives exist for law firms (and other legal advice providers) to have good complaints handling, it is important to consider why this has not been universally implemented across the industry. One possible explanation is that some firms may underestimate the extent of these commercial incentives, because they do not appreciate the importance that customers attach to complaints handling. It is therefore important to: (i) seek to understand what the business case for good complaints handling might be, from a law firm’s perspective; and (ii) communicate that business case so that the scope for providers underestimating the potential benefits is reduced. In the above context, The Legal Ombudsman commissioned Economic Insight to undertake an analysis to determine the business case for good complaints handling in the legal services industry. This report sets out the results of our findings, and addresses in turn:
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The background context to our work. The methodology and approach we have applied in order to develop the business case. The results of our analysis (including a quantification of the potential benefits of improved complaints handling).
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Given that the primary issue that our study seeks to address relates to the commercial incentives faced by the providers of legal advice, the approach we have taken is to develop the business case from a ‘commercial perspective.’ That is to say, we have sought to identify – and then quantify – the potential financial impacts (both costs and benefits) on law firms of developing good complaints handling processes. The objective of this is to ensure that the business case for improving complaints handling is evaluated in the same way that law firms would evaluate any business opportunity in the real world. To implement this approach in practice, we developed a forward looking financial model that estimates the profitability and cash flows of ‘stylised law firm types’ both under a base case, and for a scenario in which we assume improvements are made are to firms’ complaint handling process. Our modelling has been informed by: (i) existing academic research and studies; (ii) analysis of a range of financial data; and (ii) a series of qualitative interviews with legal advice providers. The stylised law firms we have modelled are not intended to represent any individual firm, nor an ‘average’ of all firms. Rather, they are designed to be broadly representative of the different ‘types’ of firms that operate in the market, to reflect the diversity of legal services providers that exist (and recognising that the impact of improved complaints handling is likely to vary across firm types). We have modelled the financial impact of improved complaints handling for:
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A sole practitioner – likely to have a turnover of