Since 2008, insurers have pressured insurance defense (ID) firms to deliver more work, of the same or higher caliber, without raising rates. In response, many firms have pursued “digital transformation” yet found little relief. The reason is that most legal software vendors don’t understand how ID firms work.
ID firms operate in six-minute billing intervals subject to “Outside Counsel Guidelines” (OCGs), the insurer’s reporting requirements and 100 or so rules on what can and cannot be billed. With rates flattening, firms must eliminate, minimize or automate unbillable, clerical tasks to improve their margins.
In my former job as chief information officer for Margolis Edelstein, a nine-office ID firm, I worked with a variety of vendors to try to solve this problem. Eventually, I realized that six-minute intervals and OCGs weren’t merely constraints on the industry; they underscored a transparency problem. Software vendors didn’t grasp this core issue and therefore didn’t address it.
I want to discuss why the insurance defense industry still needs technological solutions to transparency and outline what they should do.
Transparency within the firm
ID firms often expect their lawyers to bill 150 to 175 hours per month, or up to 1,750 six-minute increments. Legal software ought to make this workload more achievable and quantifiable but usually doesn’t. That leaves a gap between how attorneys think they spend their time and how they really spend it.
For example, ID firms receive a mind-throttling, 24/7 inflow of emails, instant messages and other communications, compounded by need to assess whether work on them is billable. OCGs usually state that firms can bill for analyzing the contents of an email but not for finding it, opening it, organizing it or doing anything else that is deemed “clerical.”
So, every six minutes, an ID attorney interrupts himself or herself to document work and determine what’s billable, and each new email is, potentially, cause to repeat that process. The kicker: Firms don’t know which unbillable activities take place, for what purpose, for what duration, how repetitively and at what cost.
Legal software for ID firms must offer quantified transparency into what users actually do. That awareness is the first step toward improving financial results amid flattening rates.
Transparency with clients
Insurers want transparency from ID firms, which seek to build trusting, long-term relationships with them. Documenting six-minute intervals is the minimum. The heavier burden is reporting.
Typical OCGs call on firms to deliver an initial report and plan for resolution within a certain number of business days; to report on the list of events considered “significant developments”; to report a specified number of days in advance of a court-ordered settlement conference, mediation or arbitration; to provide pre-trial and post-trial reports; to report on depositions, motions and appeals; and much more.
If this list seems excessive (to non-ID lawyers), that’s the point. The insurer’s bar for transparency is such that ID lawyers constantly churn out reports. The chances of missing deadlines or forgetting a report are high, with consequences for the firm’s relationships with claims adjusters and examiners.
This suggests another key function for software: translating OCG reporting requirements into digitized projects with deadlines, checklists and systems to ensure they get done. Software should set up the firm to deliver reports on or ahead of time. There’s no overstating how much that can improve relationships with insurers.
See also: Insurance Technology Trends for 2022
Accountability for the team
To recap, an ID firm’s revenue is the output of minimizing unbillable tasks and maximizing billable hours. The firm’s relationship with insurers depends on a never-ending stream of reports. At their core, these are both issues of transparency and best managed with technology. That technology, however, must recognize that ID teams function as teams with shared accountability.
Usually, each team is led by a partner who oversees associates, paralegals and administrative assistants. Members back each other up and fluidly pick up tasks. Sticky notes and whiteboards, though commonly used, are not ideal. There is a need for software to centralize communications, case files, project items, OCGs and more, so team members have the same view of the case. This eliminates lots of redundant, unbillable work and ensures that reporting deadlines are hit.
Why wouldn’t ID firms already use systems like this? In ID firms, technology adoption can take four to five years because the risk of failure—of software sparking costly disputes or straining long-term relationships—is often considered too high.
Time to step back
“Digital transformation” isn’t a synonym for buying new tools. Rather, it is a rethinking of processes, cultural norms, and strategies in light of new capabilities and market forces, like flattening rates. My call to ID firms is to put transparency at the heart of this process.
I’ve suggested what software can and should do for ID firms. It is on their leadership to decide whether those six-minute intervals will become more meaningful—and profitable.