A year ago to the day, I started a blog series on controlling legal costs in claim legal files. In that blog post, I stated that the only three ways to effectively control legal costs were: establish a dedicated legal bill review unit, train (and effectively monitor) the adjusters who handle litigated claims legal files, or outsource the legal bill review function. Throughout the course of the past year, I blogged about each one of these options, noting the pros and cons of each.
Recently, a former colleague contacted me to say that I had failed to mention a 4th way to control claims legal costs – establish a staff counsel operation. Having been one of the primary co-founders of the ABA’s General Committee on Insurance Staff Counsel and its first Vice Chair, all that I can say is, “mea culpa!”
In fact, at the risk of overcorrecting my earlier statement about their only being three ways to control claims legal costs, I would have to say that not only should using staff counsel be considered a fourth way to control claims legal costs, but it should be considered as the most effective way.
Having had supervisory responsibility for staff counsel throughout the U.S. at three different insurers, I have experienced firsthand just how a well run staff counsel operation can have a huge impact on reducing claims legal costs. I found in certain areas that we could save up to 50% in legal costs. In fact, I recall that I would not recommend opening a new staff counsel office unless my research indicated the company could save at least 25% in legal costs. (There are good reasons for this 25% threshold that I may detail in a future blog piece.)
While outside counsel will concede the fact that using staff counsel can save an insurer on legal costs, they generally counter that what insurers save in legal costs will be lost in increased indemnity payouts. That is, they claim they get better results. However, my research found just the opposite to be true. That is, not only did I find that using staff counsel saved on legal costs, but I also found that staff counsel got better indemnity results.
There are two primary reasons why staff counsel can get better indemnity results than outside counsel. The first reason is the more difficult – hiring quality counsel who are a good fit for a staff counsel operation.
Hiring quality counsel that are a good fit for a staff counsel operation may sound like a given and a no-brainer. But I learned along the way that it is much easier said than done. This is due to the implication in the earlier sentence that “quality counsel” and “good fit for staff counsel” are two distinct concepts. Believe me, experience long ago has taught me that the second does not always automatically follow the first. Hiring quality staff counsel who are a good fit for staff counsel is definately more art than science.
The second reason why staff counsel can get better indemnity results stems from how staff counsel are measured. On this point, I will have to give credit to a former boss of mine who often remarked, “you get what you measure.”
If it is true that you get what you measure, what do you think you will get if you measure staff counsel by: a) how many hours they work files (like outside counsel are measured), or b) how quickly they close files? If you chose “b,” you likely will get claims files that close quicker.
Of course, there are other factors to use in measuring individual staff counsel and a staff counsel operation. But, if file closure is a primary measure and if as a result you do get files closed sooner, this can help lead to better indemnity results. On this point, just remember the old adage that “a claim file does not get any better with age.”
An added bonus to files closing quicker is increased claims staff productivity. You can do simple math to prove this fact. For example, assume all your litigated PL soft tissue injury files can close 6 to 8 months sooner and see how that can impact the productivity (or even the number) of claims staff.
I could go on and on about the advantages of using staff counsel. However, I will end by dispelling a common misconception that it is just for large insurers. That is not true. Smaller insurers may also be able to leverage the cost savings advantages that their larger competitors have by using staff counsel as there are several staff counsel models.
There are a number of factors to consider, both by large and small insurers, before deciding if establishing a staff counsel operation is right for your company. I discuss some of those considerations on my website under the “Staff Counsel Analysis” tab.
If you would like to learn more about whether a staff counsel operation is right for your company or if you already have a staff counsel operation and want to have it assessed to determine if it is maximizing its cost savings potential, please contact me for more information.