In my April 19 blog post, I reported on a study by a legal software company in Inside Counsel that indicated as companies consolidated legal work, rates at those firms tended to increase so that overall, the consolidated legal work tended to cost more, not less. The study also showed that matters staffed by newer associates tended to cost up to 20% more.
At first, I tended to write that counter intuitive study result off as it was just one more example of how some corporate legal departments can fail to properly execute on what should be a slam dunk way to save on outside legal costs. But as I considered the matter further, I realized that there certainly are ways consolidating claims legal work into fewer law firms actually can wind up costing more money.
Of course, one of the chief reasons to consider consolidation is to save on legal costs. After all, with all other things being equal, if you are not going to save money by consolidating legal work, why do it? So it is that many insurers have found that consolidating legal work within fewer law firms results in a net savings on legal costs through being able to bargain for better hourly rates or other cost concessions (e.g., reduced travel costs).
But saving on legal costs is just one factor to consider when consolidating legal work. Insurers also need to consider indemnity results achieved and cycle time reports on files handled a firm. For any legal costs savings achieved through consolidation can quickly evaporate if indemnity payouts and cycle time go up. Continue reading