How Lowering “Cycle Time” Can Reduce Both Outside Legal Costs & Internal Staff Costs

In the March issue of Claims Management magazine, attorney Jim Pattillo wrote a very interesting and valuable articled entitled “Legal Metrics that Matter with Defense Counsel.”  The article speaks to insurance claims professionals and outside defense counsel alike and gives valuable insights on how to measure the effectiveness of outside counsel.

Two of the more valuable metrics given in the article are “time to close” and “lawyers per indemnity dollar.”  The latter metric I have not seen written about before although it is definitely something I watch for in my legal bill reviews.  I invariably will alert the insurer when I see too many lawyers and paralegals working a file.  As Pattillo states in his article, “the legal expense is likely to be higher since each person who touches the file has to be brought up to speed.”  How true.

What Pattillo calls “time to close,” I call “cycle time.”  This is perhaps one of the most important yet most undervalued metric to be used to measure total legal costs.

One of the first “rules” I learned in the claims business was that “a claim file does not get better with age.”  As I learned many years ago, that rule applies whether you are talking about file costs or indemnity payments.  While I am sure there are some exceptions to this rule just as there are with any rule, let’s just say that for the average litigated file, it does not cost any less the longer it is open.

While it should be considered as a given that files with shorter cycle times will have less legal costs (and may also have less indemnity costs), did you know that that files with shorter cycle times also affect staff productivity – even to the point of needing less staff?

Assume that the appropriate file load for a litigated file handler is 100 files.  Over a 36 month period, figure what it takes 5 file handlers to handle files with a cycle time of 18 months and then figure what it takes 4 file handlers to handle files with a cycle time of 14.8 months.  You will find that the results are almost the same.   Think about it.  By reducing cycle time from 18 to 14.8 months, an insurer theoretically could reduce the litigated file handling staff by 20%.

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