The Board has ultimate responsibility for setting the Group’s risk appetite and for effective management of risk.
An ongoing process has been established for identifying, evaluating and managing risks faced by the Group. This comprises the maintenance of a detailed risk register by the management team of each division which is regularly reviewed and challenged by the Executive Directors. An annual assessment of key risks is performed by the Executive Directors and presented to the Board.
All risks take into consideration the likelihood of the event occurring and the impact of that event. Once the risks have been assessed appropriate mitigation actions are determined for each key risk identified. The principal risks identified in the table below.
|Impact of regulation||The Group operates in a number of regulated markets. In Personal Injury, this includes the need to comply with the provisions of the LASPO Act 2012 and regulation by both the Claims Management Regulation Unit (CMRU) of the Ministry of Justice (MOJ) and the Solicitors Regulation Authority (SRA). Non-compliance could result in additional costs and/or reputational damage.
Regulatory oversight for claims management companies will transfer from the CMRU to the Financial Conduct Authority (FCA) in April 2019. If the Group were to fail to adapt to this change then the risk of non-compliance could increase.
Regulations and laws are open to change as demonstrated by the Government’s decision to change the small claims limit and restrict compensation for soft tissue injuries in the Civil Liabilities Bill, due to be implemented in April 2020. The main consequences of this Bill are well documented, however, some key details of implementation still need to be clarified. In the event either the Group or its customers fail to, or are unable to, change their business models then this could have a significant impact on the Group’s future prospects.
|The Group monitors regulatory and legal developments closely and this informs our strategic plans and consumer proposition. Management continue to work with the Regulators to ensure compliance and are already working closely with the FCA as it plans its transition.
The business model has proven to be adaptable and resilient to change in the past and continues to develop in response to regulatory change including our current re-engineering of our Personal Injury division.
The Group is working closely with the MoJ and other stakeholder groups to get clarification of the key aspects of regulatory implementation. The Board will continue to review the model for appropriateness as the regulatory environment develops and adapt accordingly.
|Brand and reputation||Corporate Profile and Brands
The Group’s success and results are dependent, in part, on the strength and reputation of the Group and its brands.
These brands, which include National Accident Helpline, a number of residential property brands and the Bush & Co brand, are exposed to the risk of being tarnished by any significant adverse publicity, including being falsely accused of using unethical marketing techniques such as cold-calling, which could adversely impact the Group’s financial performance.
Quality and Independence
The Group’s success in the Critical Care sector is largely dependent on the quality of its consultants and expert reports; and the preservation of high standards of clinical governance. Failure to maintain such quality and independence exposes the business to a tarnished reputation for handling and processing cases which could result in a deterioration in financial performance.
|The Group engages external advisors to help protect its corporate profile and advise on public relations. The performance of the Group’s brands are tracked and actions taken to ensure they remain effective and ahead of competitors.
In Personal Injury, our brands operate in regulated environments, which provides additional protection against unethical marketing practices. False attribution of cold-calling
is mitigated through our clearly documented ethical approach to marketing; our work with the Government’s Insurance Fraud Task Force and the Department of Culture, Media and Sport to ban cold-calling; and through supporting consumers making complaints to the Regulator where they have suffered from
Bush is registered as a Domiciliary Care Service accredited with the CQC and adheres to various care standards by the relevant registered authorities. This ensures the Group protects its brand and its reputation. Quality is maintained by a clinical supervision process supported by highly trained case administrators.
Clinical governance is the cornerstone of Bush’s business and all consultants have a mixed caseload of claimant and defendant instructions.
|Market disruption||Online marketing
The Group relies on its marketing strategy to retain its market leading position in Personal Injury and Residential Property. Any significant change in technology, cost of acquisition, or changes to search engine algorithms could impact the Group’s ability to maintain its rankings on search results and increase the cost to achieve its revenue targets.
Panel Demand in Personal Injury
The Group is partially dependent upon its Panel Law Firm customers in order to maintain a flexible distribution strategy. The forthcoming regulatory reforms have prompted some law firms to review their level of investment in personal injury cases and seen some close their doors to new business altogether. If this is more prevalent in our panel than we have planned, there is a risk that it could have an impact on the financial performance of the Group, specifically a reduction in short-term profits due to an increase in the working capital required to process additional enquiries in our ABSs.
Residential Property Market
A significant and prolonged deterioration in the UK residential property market could result in a reduction in house prices and a reduction in the volume of instructions sourced by our Residential Property division.
This would limit our ability to achieve our financial forecasts.
This could include, but not be limited to, the impact of Brexit on the market. Whilst a positively received outcome on Brexit could boost the market with an increase in supply of houses to sell, a no-deal outcome or delay to the leave date could result in further uncertainty and a slower market as buyers and sellers retrench and delay planned moves. This could result in lower levels of instructions and have a financial detriment to our plans.
|The Group has extensive experience of managing its marketing strategy through a combination of internal marketing experts and external agencies. The Group strengthened its internal competencies during 2018 and reduced its reliance on agencies to ensure it has the flexibility and capability required to react to the potential risks outlined. The Group also transitioned to a leading digital search agency during the year to support its paid search activity in Personal Injury.
The Group continues to provide its customers with high quality enquiries that ensures they maximise their financial return. In order to secure stability of distribution, the Group has provided a limited number of panel firms with enhanced credit terms, which are managed very carefully.
In recent years, the composition of the panel has changed and the Group seeks to ensure that no single customer accounts for a disproportionate amount of the Group’s business each month. Whilst the Group sees flexibility of distribution as an important part of its strategy, the development of the Group’s ABSs has ensured that it can manage the placement of its enquiries strategy and reduce the concentration risk.
The Group are continually monitoring market trends and adjust our forecasts accordingly. Revenues derived from conveyancing, surveys and searches are largely linked to the volume of instructions processed rather than house prices.
The risk of a house price ‘crash’ would be mitigated through our focus on the first-time buyer market, which would likely be less impacted, and our value proposition, which may be more important to home owners in a distressed market.
The Directors believe that the impact on the property market is the only material exposure to Brexit risk and is mitigated as above.
|Business model||ABS Performance
An increasing volume of personal injury claims are now processed in our ABSs, which exposes us to financial risk based on case performance. Performance levels that are lower than forecast could impact the quantum and timing of revenue recognition and cash conversion thereby having a material impact on the Group’s financial prospects.
For our joint-venture ABSs, we rely on the ability of our ABS partners to process work in a way that is consistent with the assumptions we have made in our business models.
Demand for consultants in Critical Care
Competition for the best case managers and expert witnesses remains high within the sector. A failure to attract and retain high quality consultants could constrain our capacity and limit our ability to hit our financial forecasts.
|Our assumptions have been produced in conjunction with our ABS partners, who are themselves experienced and successful PI law firms, and using our 25 years of experience of working with panel law firms. We update our assumptions regularly to reflect actual performance. This gives us confidence that the assumptions are realistic and achievable.
We maintain control over our wholly owned ABS and have in place a comprehensive set of metrics to help manage the performance of each cohort of claims.
In our joint-ventures, we work closely with our ABS partners to manage performance through weekly performance reviews, contractual SLAs and monthly Board meetings. We also exercise audit rights over the book.
In Critical Care, we offer our consultants a chance to be part of an award winning, supportive and growing team with extensive training to support their CPD requirements; access to clinical specialists; and opportunities to network with their peer group. Consultants value the scale of the business, which provides geographical benefits, and the level of back office support that smaller competitors cannot match. In 2019 we are investing to enhance our consultant proposition and further differentiate ourselves from our competitors.
|Transformation||In pursuing its transformation strategy within Personal Injury, the Group may incur substantial unforeseen costs and issues which could divert management attention from the day-to-day business.||The Board closely monitors the execution of the strategy through a programme governance group, chaired by a Non-Executive Director (Tim Aspinall) and includes the Executive Directors
Detailed project plans and risk registers are maintained for each element of the transformation programme, with a focus on technology and people, and costs are subject to budgetary control.
|Financial||The regulatory changes discussed above along with the high acquisition cost of personal injury claims is resulting in consolidation among small and medium sized personal injury firms, with some firms ceasing to take on new business or trade entirely as a result. This presents an increased credit risk, including the risk of insolvency among panel firms.||Within Critical Care, settlements are made from client funds which are held in trust account under SRA rules. This provides protection against credit risk.
Within Personal Injury, smaller panel firms are required to provide deposits to limit the financial exposure of the Group. A small number of firms are permitted extended credit terms, but these are limited and carefully controlled. Firms are credit checked and financial information is regularly reviewed by management to ensure ongoing credit-worthiness. The Group operates a delegated authority list, which includes approval of extended credit terms by the Board for significant exposures.
The Group has adopted IFRS 9 Financial Instruments during the year and provides for debts on an expected credit-loss basis.
At 31 December 2018 the Group had provisions for doubtful debts amounting to £0.9m.
|IT, systems and data security||The Group utilises various IT systems in support of the business, including website and call centre technologies. It depends on these systems to deliver the various service offerings to customers and consumers. A major IT or system failure, or a malicious attack, data breach or viruses could interrupt our ability to provide those services.
In Personal Injury and Residential Property, technology is becoming an increasingly important part of the consumer proposition and is used to reach out to consumers and differentiate the business from its competitors. Should this technology fail, it could result in reputational as well as financial risks.
Through the normal course of its business, the Group handles personal data and it commits to consumers that this data will be protected and only used for the purposes for which it was provided. If this data is not safeguarded, there is a risk that it could be used for malicious purposes, including identity theft, which could result in reputational damage for the Group and/or a significant fine if the Group was found to have not complied with the regulations.
|The Group does not rely on one single system or platform, rather having individual systems for specific purposes. These systems are supported by appropriately experienced individuals and third parties and subject to back up and disaster recovery processes. Critical systems fail over and recovery processes have been successfully tested with no issues identified.
Regular assessment of vulnerability to malicious attacks is performed and any weaknesses are rectified. All employees sign up to the Group’s IT policy which, along with various anti-virus tools, is designed to protect the business from attack.
The Group continues to invest heavily in optimising the consumer journey through the use of technology, to ensure it remains competitive and attractive to its consumer base. The Group takes data security very seriously and has put in place robust data protection procedures to ensure it is compliant with the Data Protection Act 1998, GDPR and other relevant regulations.
|People||The Group’s future growth and success depends, in part, on the leadership and performance of its Executive Directors and senior leadership team. The loss of a key individual or the inability to attract appropriate personnel could impact its ability to execute its business strategy successfully which could negatively impact the Group’s future performance.
In addition, high employee turnover in operational areas of the business could risk successful delivery of key operations, which could result in reputational damage and an impact on financial performance.
|The Group maintains competitive and attractive employment terms and conditions, fully empowering key individuals and allowing them to maximise their job satisfaction. The Group incentivises key management through performance-related pay in the short-term and through share options for medium and long-term retention.
The Group enjoys low employee turnover compared to its peers and high levels of employee engagement. This is achieved through the development of its values-led culture with strong leadership, high levels of organisational capability and a focus on employee development. The Group operates learning and development initiatives to increase job satisfaction and promote the opportunity for internal succession.