Why Aren’t Insurance Attorney Rates Higher?

An attorney friend of mine in the San Francisco area lamented about the low rates insurers pay to attorneys.  He asked if I didn’t think that $250 an hour was a reasonable rate for insurers to pay defense counsel?  Well, since that this is the rate I charge in my ethics and professional responsibility law practice, I had to agree that $250 is a reasonable rate.

However, $250 an hour is not a standard rate that can be applied throughout the entire legal profession.  (See my earlier posts on $1,000 an hour lawyers.)  I can easily point to the fact that my rate is lower than other attorneys in my area charge for similar legal services.  Even in tony San Francisco, $250 an hour for “standard” insurance defense cases would not be considered the going rate for insurance defense lawyers.

I will step out on a limb here and say that insurers would not object at all to paying all insurance defense attorneys $250 an hour – if that were the going rate for insurance defense attorneys.  Why this is not the going rate for insurance defense lawyers is not the fault of the insurance companies.  It is the fault of the insurance defense attorneys who invariably undercut each other on fee rates just to get the business.  As a claims manager, I saw many good defense attorneys inch their way up in fee rates only to be undercut by other firms who wanted the business and could do just as good work.

You can’t blame the insurance companies for this situation.

I suppose at the heart of the matter, the law profession is an overcrowded field.  As such, the natural effects of the law of supply and demand kick in.   If there were less lawyers, their fee rates would be higher.  But that is not going to happen – at least not in my lifetime.

The bad news for defense lawyers is that billing rates likely are not going to ever dramatically increase.

The good news for defense lawyers is that being stuck with lower rates doesn’t necessarily mean being stuck with lower profit margins.  Doing legal bill reviews and litigation management projects for a number of insurance companies and seeing how hundreds of law firms operate in all parts of the country, I believe that I can tell which firms are making money.  I can do this by a number of ways including how well the firms plan and carry out their work. I can also tell by the way they use their staffs.  Some firms use partners (at $150 an hour – or less) to do things that another firm will use a $75 an hour paralegal to do.  All other things being equal, would you care to guess which firm is making more net profit and at the same time is saving its insured clients more money?

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One Response to Why Aren’t Insurance Attorney Rates Higher?

  1. David says:

    There are different kinds of insurance defense work. If you are an Am Jur 100 firm and you want to pay lawyers who have never practiced before $160K plus bonus, then you need insurance defense work that pays more than $350/hour for associates. This type of work is usually federal statutory litigation, sometime EPL, E&O, more often D&O.

    If you are doing personal lines casualty defense and paying your associates $70K per year, then you can make out just fine billing them at $200/hour.

    Also, if you pay your new associate $70K, plus benefits and overhead, maybe she costs you $150K per year. If she can bill 2000 hours (40 hrs time 50 weeks or 43 hours times 47 weeks) at $150/hour she brings in $300K for a profit of $150K or 100%

    100% profit should be good enough for anyone, in the absence of lawyers

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