Focus on the Insurance Sector - Visibility of Legal Spend and Work
The current opaque nature of information about legal costs breeds inefficiencies and bad practices. There is urgent need for a new and transparent way of working which can align both the needs of both insurers and the law firms.
Insurance Companies have for many years now been operating panel arrangements for their law firms. They spend significant time on the selection process of their legal panel and most Insurers have a procurement process and department.
Insurers control significant legal spend across their range of products and services and a law firm which is appointed to legal panel for an insurance company can be assured of good quality work of ranging values.
The insurers focus their expertise on service delivery and price; seeking the best possible service for the best possible price. Law Firms need to adapt their pricing models and service delivery to reflect the overall contractual relationship with their Insurer Clients.
Neither the Insurers nor their Solicitors can compromise on quality of advice, but price is very sensitive and, with downward pressure on fees, the challenge for law firms is to retain both panel status and profitability.
Both Insurers and their Solicitors spend significant time and money managing the relationship across thousands of files but to what extent is this time and expense justified - or is there a risk of ‘ticking boxes’ to give a comforting impression of implementing a level of control? There is little or no prospect of an insurer being able, or even wanting, to assess and monitor every aspect of a law firm’s handling of a every matter and the law firm is in any event likely to be understandably reluctant to provide a completely transparent view of their entire operation as they will feel that the way they run the cases and work to a service level agreement is for them to implement in the best way they can. That said, the adage: “trust me; I am a lawyer” is not always guaranteed to be a conclusive answer to a question about legal costs!
Is it time for a change? Surely both law firms and Insurers need transparency so that they can work constructively, effectively and efficiently together to achieve the common goals of quality service at the best available price.
Why shouldn’t law firms and Insurers have transparency of operation? What is needed is a fully collaborative and transparent approach that recognises that Insurers are entitled to best value and excellent service and law firms to manage the case and to make a profit. There is an opportunity to align the relationship so as to achieve the goals of both parties.
Insurers can then see that they are getting the service and quality legal advice that they need at a price that is fair and reasonable; and Law firms need make no apology for having sufficient income to provide that service and quality and to make a fair and reasonable profit in the process.
It is plainly in the interests of Insurers and their legal panel to be wholly aligned.
What information would be required by the insurer to ensure a more informed evaluation of the law firm in order that interests can be aligned?
With Insurers spending billions across the industry on legal costs they have the right to understand how and why they are spending money and to ensure they receive the service that meets their expectations from appropriately qualified and supervised staff.
For an Insurer to truly establish that they have control over their legal spend they must:
- Have complete visibility of all time spent on their legal work;
- Have transparency of case actions to ensure that matters are being handled efficiently;
- Be able to assess time and spend by fee earner, department, office and firm;
- Have the ability to review panel firm performance and compare it, not only within a firm but across the panel by reference to fee earner, department, office and firm;
- Be able accurately to monitor actions against clear Service Level Agreements to confirm that contractual commitments are being met;
- Have complete visibility of experts and other service providers out-sourced by law firms to ensure the instructions are being sent to the appropriate people whose fees are also being monitored and controlled and measured against SLA’s (at least some of which will be set by the insurers);
- Have automatically referred to them any issue which could raise questions as to fees to be charged or a service level not being met;
- Be able directly to audit information provided;
- Have automatically drawn to their attention cases that require attention because of changes which were not anticipated – whether not anyone has slipped up;
- Be able readily to compare actual with budgeted spend by different variables – Case, work type, firm and panel;
- Be assured of case progression by tracking average case life cycles for different case types and split by fee earner, department, office and firm; Be provided with automated and regular (if not live) management information in an easy to understand format with granular detail for analysis as needed.
If an Insurer cannot access this level of information, and if a law firm cannot provide it, how can there by real transparency of operation and reliable assurance that the time and expense in entering and finalising a procurement process has achieved the goals of all parties involved?
Across the Insurance, Lloyds and Reinsurance markets there are a number of Insurers operating in the high value special risks division which provides insurance in areas such as Marine and Aviation, Professional Indemnity, special risk etc. These tend to be lower volume and higher value risks when a claim occurs. Should that claim involve litigation the value tends to be significant and to be reflected by equally significant legal costs.
Due to the different and more specialist nature of these insurers, most do not have the need to create a panel of law firms, as required for bulk legal work, but instead tend to be more bespoke with single cases generating significant legal spend across a number of different law firms selected because of appropriate expertise.
How can an Insurer, when faced with such complexities in the management of the legal work on the high value case, and the processing of it, be assured that they obtain best value at all times? The drive has to be to ensure: -
- Appropriate hourly rates are being charged at all times across the range of firms and fee earners;
- Visibility of time entries to ensure they are at the appropriate charge-out rate;
- The external spend on external service providers, such as Counsel, is being controlled along with other disbursements;
- The time being spent on each transaction is appropriate to the needs of the case;
- Service level agreements are being fully complied with;
- The ability to see all material case management actions to ensure that the matter is being effectively and efficiently driven forward;
- Bills are regularly presented, and provide sufficient detail and are transparent on both direct and disbursements spend;
- The ability to assess law firm activity when there are multiple firms working on one matter, so as to ensure there is no duplication of time and work;
- Ability to compare panel firms in terms of time and charges at all levels by fee earner, department, office and firm.
How can all of this be achieved in an environment where there is already significant pressure on costs containment and reductions? Monitoring and controls come at an expense. But adding more expense into the overall process is not welcomed; but inexpensive technology can assist in providing the understanding and transparency that is needed and can, through this understanding, introduce a relationship which respects and responds to the needs and requirements of all involved.
LHQ provides a simple, efficient, and cost-effective software solution.
LHQ software, through its law firm management analysis and costing tool, provides both the insurers and law firms with the ability to operate a transparent and effective tool to monitor, control and interact on activities in legal transactions.
LHQ provides insurers with clarity and understanding of their legal spend and provides the law firm with the ability to manage their environment to drive efficiency and profits. The LHQ system is web-based software that extracts time recording and expenses data from the law firms practice management systems into real-time information and analysis.
The buyers and sellers of legal services of course have differing agendas but what must be aligned is the common need to provide and receive the best possible service and to charge or pay a fair price for that service. There is no point in a client reducing legal fees to a level that prevents a firm from providing the right service; and there is no point in a law firm applying unreasonable charges.
The LHQ system has the capability to provide the insurer with the following facilities: -
- Transparency of costs and case actions - Through direct interaction with a law firm’s practice management system the insurer is provided with the ability to monitor legal spend at a detailed level so providing a step by step analysis of the journey a legal case has taken recording each action and unit of time. The system can also identify when a matter being handled under a fixed fee or cost cap has been reached or nearly reached, thus providing a warning to both the client and the law firm for action to be taken.
- Real Time Reporting - The system operates in a real time environment as it will receive information as the law firm’s system is updated. Whist it may not be appropriate to real time track every legal case and transaction on those cases where the possibility to do so is there it enables immediate interaction when a matter is about to exceed or has exceeded, a tolerance level.
Comparison data - the LHQ system is capable of allowing the insurer to assess a law firm’s performance at a very detailed level, so as to make informed comparisons, not just within the firm but across a panel of law firms.
- Disbursement spend and exposure - A firm should be capturing on their accounts system details of disbursements that have been incurred or anticipated (incurred but not paid) disbursements. This will also enable immediate interaction where spend is not acceptable or where there is an issue which can then be resolved quickly instead of at the end of a matter when often it is too late to remedy.
- Monitoring of Service Level Agreements - As the LHQ system is linked to the case management system and collects data on actions and charges, clients are able to monitor actions taken against their own service level agreements. LHQ provides this facility through the user-friendly reporting dashboard which can be configured to highlight SLA breaches and automatically escalate these to the appropriate people for action to be taken.
- Visibility on Case Progression - A further benefit of linking the system to the time recording module in a law firm is that it enables the client to monitor case progression and gives the opportunity to interact and drive cases forward to prevent costly delays.
- Auditing and Risk Assessment - As the LHQ system enables visibility of case actions it will also provide an auditing functionality. This constant monitoring platform replaces the need to audit in the current manner and is significantly more efficient.
- Visibility of opponents’ costs - Although there is no direct access to claimant data from the defendant law firms' PMSs, available claimant information can be stored and analysed to build up trends in claimant behaviour.
- Change in the decision making process - Delivery of the ability to enable decision making and risk taking to be done on an informed basis. The collective data will build a picture on case progression and costs being incurred. It can show when taking a stand on some legal point is likely simply to escalate costs and is uneconomic in the context of the quantum of a case.
- Budget monitoring - If an insurer has set a budget for costs and disbursements the LHQ system will enable tracking of legal spend to that budget. If a law firm is clearly creating, or even risking, an exposure beyond that which is budgeted the insurer can fairly and reasonably intervene, to discuss an appropriate course of action to be taken on an informed basis.
- Tender preparation and negotiation – by using LHQ insurers will have a wealth of information from which to base their proposals and, through doing so, to establish the appropriate price for the delivery of the legal services they need. It also enables feedback to be provided on the activity undertaken by existing panel solicitors and enable detailed discussions on process improvements that could result in legal costs becoming more competitive.
There are some more basic systems in the legal market that offer some technology to validate billing and invoicing, however unlike LHQ, these systems do not provide transparency and visibility on the build-up of legal fees and expenses throughout the case. Insurance companies do collate information on costs, but they are historic as opposed to current. To have data that is current enables insurance companies to be proactive, in advance of and during the course of litigation as opposed to being reactive and this obviously provides significant benefit to them.
These benefits are not just accrued on individual cases. Over time substantial benefits can be reaped from the use of analytics on the panel law firms’ data. For example, data can be extracted to give a better understanding of fee earner efficiency; life cycle for different categories of cases; or the levels of damages, against costs incurred, for cases across different law firms. True and accurate scorecards can be created with detailed information ensuring the most productive and efficient firms receive the work they are good at. Weak firms, fee earners or areas of work can be identified, work redirected, and targets created to ensure improvements are made.
Panel firms have historically been influenced by the pressures imposed by the price-per-hour regimes. This has impacted on the firm’s productivity but not necessarily their profitability. In a new era of more open transparency and alignment between the needs of both insurer and the law firm, law firms will find that productivity will improve without profits being hit, whilst insurers will have quality of service at a reasonable price. Through the use of the LHQ system and driving efficiency through transparency, if an Insurer is able to bring down case life cycles by 1 month that will equate to sizeable savings. For example, LHQ believes that it is realistic to aim for a target of a 1-month reduction in the average life cycle of a case across the board from 18 months to 17 months. Using the NHS as an example, in 2016/17, The NHSR paid out £651m in legal costs (NHS Resolution Annual report and accounts 2016/17) so by achieving a one-month reduction in the average life cycle this could reduce legal costs by approximately £54.25 million.
It must be clear that huge benefits can be reaped by the legal departments in insurance organisations embracing technology and obtaining transparent and visible information on the activities and legal spend of their law firms. Law firms maybe more reticent to provide this information if
they mistakenly see them as further challenges to their traditional ways of working and therefore to profitability. However, in business and in the legal industry today and in the future, openness, efficiency and accountability is what their clients, whether they be insurers or others are entitled to expect. Moreover, those firms that do welcome the technology will actually come to realise that they too are better off.
For more information or a demonstration on the LHQ solution you can either email us at firstname.lastname@example.org or call us on 020 3637 1950.
Our website www.lhq-uk.com provides full and detailed information on our solution.