Burford Capital & the Risk of Insurance Products: Law Firm Angle

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I've noticed several firms like Gallagher, who have a significant contingent risk business. However, do they possess the expertise to underwrite pre-judgement risk or do they rely on your law firm to provide that?

I can only speak from my experience. We've been hired by insurance companies to conduct due diligence work, which is not too different from the litigation funding underwriting. As I mentioned, you're going to examine the merits, damages, and the litigation strategy. However, the risk profile is different. A funder is paid a percentage of the proceeds, whereas an insurance company is paid a premium associated with not having to pay out the policy. The underlying factors are very similar, but the outward risk profile is different. To my knowledge, most insurers do not handle these matters in-house, although some may be moving in that direction. However, I haven't seen it yet.

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You secure the insurance policy, which requires a 15% upfront payment. You then go to the client. The client thinks that's quite affordable. They might pay the premium to the insurer. Then they have this policy, and they could also approach a funder or a credit fund, and say, I've got a guaranteed payment of this amount from the insurer. What is the credit fund purchasing? And they're buying the upside from there to the potentially short amount.

The deal terms vary. For instance, one might have an insurance policy, expecting to make $100 million in six years, with the policy covering 50 million. This is hypothetical, of course. Assuming they pay out, which is a separate question, that's like guaranteed money. They want to collateralize that against their legal fees, let's say 10 million. They need help to do that. They may even need to pay a premium, 13% of that.

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