I am often asked what is the one thing that insurers should look for in evaluating an AFA agreement. My response is always to not just look at the bottom line but to also look at the firm’s business model. Can the firm’s business model support the AFA?
If you want to get the “deer in the headlights look” from an attorney who is pushing an AFA as a way to save defense costs, ask what has the firm done differently in its business operations to be able to support the AFA. If they have made no real changes, then they probably don’t have a clue whether they can sustain an AFA model for their insurance defense work. Continue reading
As I have said before, the push to Alternative Fee Agreements (AFA) on the part of attorneys is due to two factors and two factors alone. The primary factor for attorneys is that so many are maxed out on what they can earn through traditional hourly billing and the only available avenue to increase revenue is through the use of AFA.
The other factor driving the push by attorneys to AFA is that many corporate clients including most insurers have turned to either internal or external legal bill review programs to wring out excesses in legal billings. So padding legal bills to increase revenues or to try to make up for lower hourly rates is no longer an option for many attorneys.
For clients, particularly insurers, they are not concerned at all about attorneys making more money. Quite the contrary. The one and only factor for isnurers to even consider an AFA is it will save on legal costs. Thus it is that the siren song appeal of flat fee agreements is sometimes too alluring for some insurers to resist. But, of course, an AFA which merely caps legal costs is no cost savings at all as it may actually lock in excessive legal costs. To truly benefit the client, an AFA must actually reduce legal costs. Continue reading