P&C Insurance Carriers Favor Flat Fees; Not All AFAs Apply

by | Apr 26, 2016

P&C Insurance Carriers Favor Flat Fees; Not All AFAs Apply

Property & Casualty (P&C) carrier legal and claims departments prefer using flat fee-based alternative fee arrangements (AFA) over any other type of alternative billing method, says a new survey, the third in a series conducted by the LexisNexis® CounselLink® team.

Eighty-two percent of P&C carrier legal and claims departments say flat fee AFAs are most effective in terms of helping the carrier legal and claims departments lower costs, increase predictability and manage matters.

Better able to budget,” said one study participant, plainly, in an open-ended question about predictability.

Here’s how AFAs stacked up in the category of very effective/effective:”

  • Flat Fee: 82%
  • Blended Rate: 78%
  • Fixed Fees: 77%
  • Multi-stage: 69%
  • Capped Fee: 70%
  • Flat Fee by Portfolio Type: 68%
  • Performance Bonus: 63%
  • Holdback: 48%

In other words, two-thirds of all respondents believe AFAs are useful in helping them manage business in performance areas related to cost, matter management and predictable legal spending.

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Biggest Impediments to Using AFAs

On the flip side, some respondents expressed concern about using AFAs for certain types of legal matters. When asked an open-ended question about the biggest impediments using AFAs poses, responses were grouped into the following three categories:

1. Case Complexity/Unique Cases/Ability to Handle Change Over Time. 

“Cases change during their course, the agreements do not adapt to that. When cases are dissimilar and require different approaches, it can be hard to lock in a fixed rate or capped amount,” said one study participant about the issue of case complexity.

2. Fear of Poor Defense.

“Attorneys tend to either give the work to the lesser paid associates if they are not getting their usual fee which results in more research hours, and less adept and qualified handling of case,” said another attorney about the fear of obtaining less qualified counsel as a result of using AFAs.

“Poor work product and inexperienced lawyers being assigned to cases to maximize returns for law firms,” offered another participant.

3. Creating a Win-Win / Being Fair to Firms.

“How to decide the fee arrangement to be fair to all sides and still provide an effective/aggressive defense,” said one participant about providing fairness to firms, while using AFAs.

 In spite of these hurdles, AFA use shows no signs of slowing down with 76.9 percent of survey respondents indicating they are actively engaging in AFAs. What’s more, nearly 20 percent of study participants say they expect their use of AFAs to increase in the coming year.

If AFAs are here to stay for the foreseeable future then P&C carrier legal and claims departments appear to be willing to pick and choose the matters they want to structure around an AFA, depending on the size, scope and complexity of the case.

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Big Data: Steady but Subtle Increase in AFAs Use


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