Insurance: Legal and Claims Rate Metrics with Most Value

by | Dec 9, 2015

Insurance Legal and Claims Rate Metrics with Most Value

If corporate attorneys across the market are seeking a sharper understanding of legal department metrics, then they might do well to review what peers in the insurance vertical are doing to measure litigation costs.

In legal and claims work, in the property & casualty insurance vertical, efficiency matters. As a result, legal professionals working in insurance claims tend to be highly process-oriented and focused on continuous improvement.

Measurement and metrics are pivotal aspects, according to a new survey of 94 U.S. Property & Casualty insurance professionals managing litigation for carriers in the claims or law department.  Seventy-two percent, or about 7 out of every 10 said metrics drive decision making, said Dan Ruderman of the LexisNexis® CounselLink® Strategic Consulting team.

Mr. Ruderman led the survey project, along with the data analysis, report and webinar on the results, which is embedded nearby.

Responses were solicited through a third-party and respondent titles ranged from staff counsel and head of litigation – to general counsel and vice president of claims.  Respondents reported their organizations’ spend on outside counsel ranged between roughly $10 million to more than $500 million annually.

A new report with analysis based on the survey is available for download with registration: U.S. P&C Law Departments Rate the Metrics They Use to Manage Costs and Performance.

Here are some of the high-level findings from the report:

1. What metrics are P&C legal and claims shops using to manage costs and performance?

The data shows carriers tracks costs closely by case.  The total cost of an average case, legal expense per case and the number of days-to-resolution were all identified by more than 80% of respondents.  Here’s how the numbers break down:

  • Average total cost of case (loss + legal costs): 84%
  • Legal expense per case: 82%
  • Cycle time (days to resolution): 82%
  • Loss per litigated case: 77%
  • Allocated loss adjustment expense (ALAE) as % loss ratio: 71%
  • Allocated legal loss adjustment expense (ALLAE) as a % of loss ratio: 63%
  • Average or median bill rate by claim type: 62%
  • Staff vs. outside counsel outcomes: 51%
  • AFA outcomes by fee type: 44%

“More than 60 percent of the claims departments surveyed report that they also track average or median bill rate by claim type,” according to the report, which suggested this measure is especially noteworthy.

“This metric cuts across both hourly rate discounts and staffing practices to provide an average rate.”

2. Of those legal metrics, which ones are most effective?

legal metric effectiveness-Insurance Legal and Claims Rate Metrics with Most Value

The survey next asked participants to rate the effectiveness of those metrics. “Ratings for metrics characterized as either very effective or effective ranged from 29 percent to 72 percent,” the report says.  In this case, the most used metrics were also rated the most effective.

The report hones in on some metrics rated least effective, including staff counsel vs. outside counsel outcomes, noting the “jury is still out”:

“The recent 2015 CLM Litigation Management Study reported that 39 percent of executives with staff counsel operations believe they do a better job of measuring outside counsel effectiveness than staff counsel, while approximately six percent felt they do a better job of measuring staff counsel.

This indicates that the industry has a ways to go to truly assess staff counsel versus outside counsel outcomes. It is not necessarily easy to track staff counsel versus law firm outcomes as the data may reside in different systems, and management must declare it a strategic imperative with associated processes to enforce data collection and reporting.”

In open-ended comments, survey participants weighed in on cycle time:

“The number of days to resolution tracks multiple things such as efficiency of counsel, efficiency of claims handling, identifying cases for early resolution, evaluating timing of getting reserve to full value,” wrote one respondent.

“By bringing claims to a rapid close, we can avoid legal expenses as well as claims costs per claim,” said another.

“Cycle time shows difference between early settlements and verdicts,” assessed a third.

3. ALAE Cost-Control Initiatives

ALAE Cost-Control Initiatives

The survey also asked participants about existing or planned cost-control initiatives aimed at allocated loss adjustment expense (ALAE) in 2015.  Third-party bill review topped the list for existing techniques while 40% plan to expand staff counsel.  The chart nearby depicts the results for this question.  The report analyzes:

“These figures are not surprising given the volume of invoices processed by P&C carriers. Our data indicates that bill review, whether in-house or via a third party, will continue to be integral to cost-control now and into the future.”

* * *

The full report details potential areas to reduce litigation costs and quantifies the percentage of reported ALAE losses in 2014.  Download a copy of the full report in PDF format here.

Note: This survey report is the second in a series of market research surveys focused on how property and casualty (P&C) insurance carriers are keeping a lid on litigation costs (related infographic | white paper).

If you enjoyed this post, you might also like:
Trends in Legal Spend from a Law Department Survey

Photo credit:  Flickr, Robert Couse-Baker, deciphering your dashboard (CC BY 2.0)

Contributing Author
Contributing Author

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