ARAG’s legal expenses insurance hopes to change Aussie mindset

Gale said her Germany-headquartered firm identified a gap in the Australian market and launched its first legal expenses insurance product here early in 2020. However, due to COVID-19, ARAG didn’t start actively engaging with the market until about 12 months ago.

“In Australia, only something like 1% of people can access legal aid,” said Gale. “So, if you don’t qualify for legal aid – and you have to be earning less than $400 a week and have no assets – you are literally at the mercy of the legal system.”

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In Australia and throughout the world, the pursuit of justice through the legal system often requires deep pockets. Gale said dealing with this issue was a founding principle of her company in Germany and the rationale behind its expansion across Europe, the UK, the United States and now Australia.

“It [ARAG] wants to be able to provide an alternative for people to be able to exercise and access a [legal] system that has often been shut out to the general public,” said the CEO.

Gale said insurance offerings like management liability protect a business owner when they need to defend themselves in court but not when they need to pursue a customer who, for example, refuses to pay a bill.

She gives the example of an electrician who does a job in a house after agreeing to a particular scope of work and a fee of $2,000.

“The client might say, ‘Well, I’m not happy with what you’ve done so I’m not going to pay you,’” she said.

Gale said the electrician has a problem because the cost of just talking to a lawyer and then engaging in cost recovery will cost him or her more than the contested job. She said most businesses tend to take the hit and walk away because it makes little sense to pursue the money.

“However, if I have legal expense insurance, I can put a claim in and it doesn’t cost me anything to put a claim in and we’ll manage the claim just like you would manage a claim for stolen tools or a crash in your car,” she said.

Gale said having legal expense insurance empowers small business owners to pursue their legal rights.

“That electrician gets to say, ‘You know what. You do owe me $2,000. I’ve got legal expenses insurance and I’m going to make a claim and I’m going to pursue this,’” said Gale.

In this hypothetical case of the electrician, she said, the case would be referred to ARAG’s legal panel. If there was an agreed contract in place between the electrician and the client, ARAG would pursue legal action because the client would likely be in breach of the contract by refusing to pay.

“That’s where our product steps into that space and really offers that strong safety net for not only small businesses and businesses at large, but also for individuals,” said Gale.

In the current economic doom and gloom of rising interest rates and costs of living, the ARAG CEO said the firm has seen growing interest in its product.

“Certainly, we’re seeing growth but it’s hard to determine whether this isn’t more from 12 months of heavy marketing and brand awareness and education that we’ve been doing in the market,” she said.

In markets like the UK where ARAG’s legal expenses insurance product is more established, she said growth this year has been strong.

Gale also credits COVID-19 and an increasing number of investigations into companies by the Australian Tax Office (ATO) with sparking some interest in the product.

“In my opinion, I think what we’re seeing is that business owners are becoming more involved in their business,” said Gale. “In light of COVID, I think they’re relying less on just letting things go and they’re becoming more aware of what they need to be covered for.”

However, Gale says their biggest business challenge in Australia is around education and creating a mind shift.

“So in Germany, it’s [legal expenses insurance] in car insurance, it’s in health insurance, it’s part of member benefits in associations and unions – who all have access to legal expenses through their employer or through their association,” she said.

In Australia, the ‘she’ll be right mate’ laid back attitude is still a cultural norm.

“Australians tend to have an approach of, ‘It’ll be OK, or I’ll just see how it goes,’” said Gale. “Then once the rubber hits the road with a particular issue, businesses are coming unstuck because they thought they had cover or some sort of insurance – but they’re left with a huge legal bill because that wasn’t covered,” she said.

Gale’s firm wants to change that mindset.

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The publisher and attorney Heinrich Faßbender founded ARAG with its emphasis on facilitating legal rights in 1935 when Germany was ruled by the Nazi dictatorship.

“Every individual should be able to assert his or her rights, not just those who can afford it,” said Faßbender, according to the ARAG website.

The firm’s first offering was automotive legal insurance at a time when the motor industry was booming. Germany’s renowned autobahns expanded during the 1930s. So did more affordable cars, boosted by the government’s founding of car company, Volkswagen (VW) in 1937.

ARAG is still run by the Faßbender family and headquartered in Düsseldorf.

“The Australian legal expense insurance market offers interesting growth opportunities and we are eager to get started on the fifth continent,” said Paul-Otto Faßbender, CEO and majority shareholder of the ARAG Group in 2019 when the Australia operation launched.