Axxia Chief Executive Partner Interview: David Kearney: The bigger picture

When David Kearney and his colleague Phillip Wotton decided to set up their own shop, the insurance industry was in crisis. The year was 2001 and HIH Australia, once one of Australia’s largest insurance companies, had collapsed after solvency problems, and a nationwide crisis in the availability of reasonable-priced insurance was unfolding.

It sparked governments at both state and federal level to implement legislative change, which came to be known as the ‘tort reforms’, reducing claims litigation and causing a general downturn in work for insurance practices in law firms. To set up a new insurance law firm under such circumstances was considered brave by some and risky by others, but David Kearney, now Chief Executive Partner of Wotton + Kearney, says he took a calculated risk.

“It was about looking very closely at our business case and looking very closely at our clients who might decide to come with us when we decided to set up Wotton + Kearney,” he says. “I think Phil Wotton and I had decided that once you’ve made the step, a significant amount of business would follow.”

The business case that, according to Kearney and Wotton, would prove to be successful, even in a bearish market, was a boutique-style insurance firm. “Both myself and Phil Wotton had become a little disillusioned with the big firm model. There was certainly a tension at Phillips Fox between that part of the business which served corporate clients and that part of the business which served insurance clients.”

The tensions between the different models revolved around different pricing structures and expectations from clients and made Kearney feel that he was losing out on opportunities. “Perhaps the marketing side of Phillips Fox’s business had lost touch with how the insurance market works,” says Kearney. “They were conscious of directing different lawyers to specific clients, while in my view of the insurance industry, it really is about having a broad understanding of the insurance marketplace and marketing not just to your insurance clients, but marketing to the industry as a whole – to the loss adjusters and brokers, the underwriting agents, etc.

“Insurer clients are of paramount importance and, to put it simply, they’re the clients who are paying the bills. But in terms of growing the business, in terms of seeking and obtaining referrals, it’s very important to have a profile across the industry as a whole.”

Kearney says the boutique model in which a law firm focuses only on a select number of practice areas enables him to have a sharper focus on the industry. For him, ’boutique’ is not a euphemism for a small setup, but it describes a firm’s game plan.

“I don’t associate boutique with the number of lawyers within a firm, I associate boutique with the market strategies,” says Kearney. “I’d describe Gilbert + Tobin as a boutique firm – it targets particular markets.”

Kearney’s definition of boutique means he sees ample opportunity for growth, as is illustrated by the opening of the Melbourne office in August 2007. “Wotton + Kearney started with six lawyers, and now in Sydney we’ve got 26 lawyers and in Melbourne we’ve got three lawyers. In one view, we’ve gone from small to a size where we’re approaching a middle-sized firm.

“Doing a bit of crystal ball gazing, in five or 10 years’ time we may well have in the order of 50 to 100 lawyers, we don’t know, depending on how our clients grow and the demand of our clients. But I’d argue that even with 50 or 100 lawyers it would still be a boutique strategy with a single market focus.”

 

Rate tensions

David Kearney made his decision to leave Phillips Fox five years ago, but recently the firm has seen a small exodus of insurance partners after it teamed up with DLA Piper. Some partners concluded the insurance practice would come under even more pressure as DLA Piper does not have a particular insurance focus. Kearney says that in 2001 there were no indications yet that an alliance with DLA Piper was on the cards, but he says it does not surprise him to see more partners coming to the same conclusion he drew back then.

 

“There’ll always be a real tension between the different practice models; the model whereby lawyers are servicing the corporates and the model whereby lawyers are servicing insurers,” says Kearney.

An argument in support of this interpretation of the industry is that the hourly fees that insurance partners can charge often don’t live up to the expectations of management, who have corporate rates in their minds. But Kearney is careful to point out that the debate about hourly rates is dependent on the client base of an insurance practice.

“When I say lawyers who are servicing insurers, I’m not talking about those larger firms which practice in insurance and which have as part of their practice an insureds focus. That to me is still a corporate focus and there aren’t the same tensions between the hourly rates,” he says. “I think Minter Ellison is a good example of a firm with an insurance practice which I suspect concentrates more on insureds and coverage disputes. [But] if you provide an insurer claim service, than there’s a real tension between hourly rates. Coming from a large firm, I understand what a corporate partner can charge and what insurance partners can charge.”

 

Melbourne expansion

Cain Jackson is one of the former DLA Phillip Fox lawyers who decided that the boutique model is the way forward. He joined Wotton + Kearney in August 2007 and leads the newly established Melbourne office. The Melbourne expansion was not a strategic choice, but rather a matter of taking an opportunity that presented itself, says Kearney.

 

“We didn’t target Melbourne,” he says, “but we became aware of an opportunity in terms of an individual who appeared to be closely aligned to our culture and when we met that person it was a bit of a no-brainer.” Kearney says it also gave them the opportunity to say to their clients, “We’ve opened up in Melbourne.”

With the addition of an interstate office, the firm has strayed from its path of a small firm with a low cost base. Kearney, once again, feels it was a risk worth taking.

“We’ve always been pretty sensible about things like the premises we choose, marketing and other expenses. We’re obviously looking closely at the expense line in Melbourne, but, at the same time, to be successful, when you see an opportunity you need to be willing to exploit that and can’t be too concerned about things like the expense line.”

Kearney is satisfied with the way the Melbourne office has performed in the few months since it opened. “It’s early days of course, but the Melbourne people brought with them some insurer clients and in Sydney we’ve been appointed to a few panels through our Melbourne people and vice-versa. We’re very confident going forward.”

Nimble boutique firms
Wotton + Kearney was established in a turbulent time for the insurance industry, but it has survived and it has survived quite well. Five years on and the firm has grown from six to 29 lawyers, and, in a way, this growth might partly be attributed to those troublesome times, says Kearney. The collapse of HIH and its consequences saw many competitors fall over or lose substantial business, thinning out the competition.

“It was undoubtedly an advantage to be a nimble boutique firm at that point in time, but I’d like to think that whether HIH collapsed or not we still would have done well within the market,” says Kearney.

The ripples of the HIH collapse are still being felt in the industry today. “I think in the last 12 months we’ve benefited from that as well. We’re seeing some larger firms making the decision that perhaps insurance isn’t really the best way to go for their business model. That’s perhaps not for me to comment on, but what I do know is that in a boutique structure insurance can work famously.”

Kearney says he sees more boutique firms emerging in the future. “It wouldn’t surprise me if there are insurance partners in large firms who perhaps are thinking the same way as I was thinking five years ago, who are disillusioned by the model and perhaps a little concerned about the leadership. In the past year we’ve seen two or three firms emerge; I think going forward we’ll see, perhaps, others emerge.”

01/04/2008