I have yet to do a department-wide audit of legal bills for an insurer who was not being overcharged at least 15% to 20% (or more) by their outside counsel. That means for every $5 Million an insurer pays out in outside legal expense, they could be paying out up to $1 Million more than they should.
Paying out more than you should in claim legal expense is called “leakage” in insurance claim parlance. This claim legal expense leakage is bad enough by itself. But, it also known that increased legal expense can lead to files pending longer. Longer pending files can affect staff productivity. Just as important, longer pending files can also lead to increased indemnity payouts. Remember the old adage that “a claim file does not get better with age?”
In my post on January 23 I stated that “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.” My post on February 6 addressed the issues involved in deciding whether or not to establish a separate LBR unit. My post today is the first of a two-part post that will address the issues involved in deciding whether training all department litigated file handlers is the best way to go about controlling legal costs in litigated claim files.
Facially, training all litigated file handlers on appropriate legal bill review techniques may seem the best (and cheapest) route for an insurer to choose. In theory, the conventional wisdom is that the file handler is the best person to review their own bills.
Reality, however, tells us a quite different story.
Marc Lanzkowsky, in “Cutting Costs Without Overloading the Claims Handler,” the Claims SPOT, April 6, 2010, writes that
“Conventional wisdom has been that claim handlers are in the best position to review legal bills on the claim files they work on. The reality is legal bill review, for most claim handlers, is a dreaded task considered a necessary evil.”
My experience as a claims manager found these comments to be right on target. Reviewing legal bills absolutely was the last thing that adjusters wanted or liked to do. Generally, insurers who rely upon all their file handlers to do their own legal bill reviews get poorer results than insurers who have a LBR unit or outsource the function.
Moreover, there is often little if any incentive for adjusters to do a good job in reviewing their legal bills. Is there an insurer out there that has a specific objective on an adjuster’s annual performance review that measures how well they do with reviewing legal bills and taking appropriate reductions? Some sort of general objective about controlling costs is not at all the same thing.
Thus I could end my post right here and simply say that insurers who want to train and monitor all file handlers on their legal bill reviews as the way to control their legal costs in litigated claim files are wasting their time and money. I could say this, but there is an exception to this.
In my next post, I will discuss this exception and when it can actually make sense (and save money) to go to the time and expense to train all litigation file handlers to review their own legal bills. I will discuss the specifics of how you go about making the right decision and, more importantly, how to carry out that decision.