The Three Solutions to Eliminating the “Leakage” in Claims Legal Costs

            Having been a national claim litigation manager at two different P&C insurers, there is one thing that came across loud and clear to me.  Adjusters do not like to review legal bills.  Reviewing legal bills is not only regarded as the least liked thing that adjusters do, it is also invariably the last thing they do.   I believe the chief reason for this is that  knowing how to properly review legal bills is very likely the one thing about their job for which they received no formal training.   They may also may lack the proper tools for the job such as a good e-billing system.  (More about e-billing in future posts.)

            Another contributing reason for adjusters not making appropriate reductions in legal bills is that often times outside attorneys seem more like friends than vendors to adjusters.  Many adjusters think that enforcing company policies and guidelines about controlling legal expenses and cutting attorneys’ legal bills will interfere with their friendly working relationships or that the attorneys will stop doing the little extra things that all attorneys do to ingratiate themselves with clients.  (Interestingly, when I directly handled litigated files, I looked at the bill review process as the opportunity for me to really gain control of the relationship.)

            One does not have to hold an MBA or be a management expert to know that the dislike of a function, perhaps caused by a lack of training on how to properly do the function, combined with a reluctance to enforce company policies on controlling costs will inevitably result in what is known in the insurance claims business as “leakage” in the claim files.   In some product lines, this leakage can be quite large as average legal expense can often exceed the average indemnity expense.

            A company that is intent on eliminating such a large source of leakage in litigated claim files can choose from among these three solutions:  establish a separate legal bill review (LBR) unit, train (and monitor) all litigated file handlers on proper legal bill review techniques, outsource the legal bill review.  It may also possible to utilize a combination of these three solutions.  

            Future postings will focus on what is involved in deciding which solution is right for a company.  This will include a discussion on when using a combination of solutions may be the right approach for a company to take.

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