according to AM Best Financial Reportbetween 2018 and 2023, litigation management costs for the combined property and casualty insurance industry will increase by 19%, representing an increase of $4 billion to $5 billion, with total litigation costs reaching up to $24 billion for LAE. Did.
Both personal and commercial airlines experience the negative effects of social inflation. While certain states and underwriting markets, such as California and Florida, remain known as problematic jurisdictions, carriers are overhauling how they manage claims files during litigation.
Plaintiffs have recently obtained significant judgments against carriers, securing “nuclear judgments” that look across jurisdictions and carriers and increase the overall cost of risk to businesses and consumers. have the ability to develop tactics toaccording to AM best, many of these decisions are also consistent with the new trend of treating litigation as an asset class. What is driving this trend is private equity and hedge funds We seek to create a new source of uncorrelated returns for investors from these substantial settlements.
The insurance industry modernizes its approach to case management by adopting new legal management systems, improving data hygiene in core claims systems, and leveraging advanced analytics and AI-driven decision support. It has turned into. This revolution in data usage has improved the accuracy of claims resolution and enabled major carriers to develop more effective ways to resolve pending claims.
A key advancement in this area is the creation of Litigation Analysis Records (LARs), which provide the ability to cross-examine previously siled data. The tool integrates internal and external data about attorneys, plaintiff representatives, claimants, policyholders, etc., providing a comprehensive view of all litigation data in one table and providing analytical insights at scale. and AI/ML processing. Create richer datasets that enable advanced segmentation and pattern recognition. These new insights have reinvigorated the classic means of case management.
There are three main areas of focus where carriers are actively working to resolve litigation claims more effectively:
- Litigation Strategy: Advanced Analytics and AI-Driven Decision Support
- Strengthening lawyer selection criteria
- Panel and in-house counsel performance management
1. Litigation Strategy: Advanced Analytics and AI-Driven Decision Support
In recent years, the insurance industry has experienced significant change due to an explosion in data availability and data migration to the cloud. This transition allows carriers to easily access and combine data sources that include third-party information. As a result, insurers are creating new teams of claims experts and data experts dedicated to uncovering insights and extracting value from data and how to resolve claims in litigation. has led to improvements in insurance and changes in the claims operating model.
In particular, the use of AI helps understand the expected cost and complexity of each case and facilitates the creation of efficient case plans and budgets based on combined insights from internal and external data sources. Having a clear path to resolution allows carriers to optimize litigation costs while ensuring more accurate settlements.
Other important use cases include:
Plaintiff attorney profile: By analyzing historical data, carriers can find patterns in the behavior of plaintiffs, who often file lawsuits against insureds. This information helps insurance companies better understand the motivations and strategies of their attorneys, ultimately helping them develop more effective defense and negotiation strategies.
Strategic positioning: Using internal and external data sources, carriers can create a comprehensive view of each case that incorporates information about the parties, venue, case type, and other relevant factors. This “single pane of glass” approach informs decision-making and improves collaboration between attorneys and adjusters, leading to improved outcomes.
2. Strengthening of lawyer selection criteria
The ability to utilize the aforementioned Litigation Analysis Record (LAR) to understand the relative size and scope of panel law firms, as well as review past case results, is essential when assigning cases. Leveraging data on attorney performance allows carriers to deliver the best overall outcome for a claim through a customized attorney selection tool or framework, depending on the complexity of the case. Additionally, visibility into the number of cases assigned to each firm allows carriers to optimize the mix of cases based on complexity and maximize the performance of panel firms and lawyers. Masu.
Historically, attorney appointments were often based on the expert witness-attorney relationship or a manager’s recommendation. However, developing attorney selection tools and frameworks that guide claims adjusters’ influence in assigning attorneys based on data and analytics could be a more strategic approach.
3. Performance management of collegial bodies and in-house lawyers
Insurance executives are under pressure to understand how key expenditures support strategic imperatives, especially for items with significant financial impact such as outside counsel fees. The top 50 carriers in 2022 will spend an average of $500 million on litigation costs, and outside legal fees typically account for 80% of these costs, depending on the business book, litigation strategy, and in-house counsel capabilities. It accounts for ~90%.
However, chief claims officers often need to focus on both litigation costs and the damages associated with those cases to gain greater clarity on the total outcome of these significant expenditures.
Leading carrier uses data-driven solutions to gain insights into attorney performance and optimize legal spend. By combining claims record metadata with data from legal management and billing systems, carriers can identify the best lawyers, ensure compliance with carrier guidelines, and deploy high-performance resources. Legal committees can be streamlined to maintain.
Typically, carriers start by creating a blended scorecard that combines these various data sources to provide a single source of truth for revealing a company’s or attorney’s performance and results.
Especially for commercial businesses, a good legal team is essential to effectively defend the insured in the event of an insurance claim. Some airlines have been successful in emphasizing the strength of their claims operations to brokers and agents, touting their confidence in their ability to provide value beyond the premium if needed.
The main use cases are:
Advanced case monitoring and escalation paths
Utilizing event-based triggers and expense tracking, airlines can monitor litigation progress against historical benchmarks provided by litigation analytics records. This facilitates an activist approach to claims file management by allowing proactive decisions to be made regarding case escalation and resource allocation at the claims level. Automated management escalations triggered by flagged changes in billing profiles and expense variances enhance oversight of pending files, allowing front-line managers to effectively focus their time with their teams. Operators with high-quality data hygiene controls have taken further steps to proactively address individual files before they deviate from the optimal path, resulting in improved results.
Litigation planning and budget compliance
Inaccurate budgets can lead to poor booking practices, especially for airlines where lawyers don’t know the quality of the budget they provide. Expenditure and event-based triggers derived from case analysis records provide visibility into cases that deviate from original case plans and budgets. These event-based triggers can help front-line personnel and managers stay on track when budget changes, spending forecasts, or task counts deviate from expectations. Changes to these event-based triggers can lead to proactive readjustment of litigation strategies based on developments within the file. For example, if a claim was initially classified as “low complexity,” but exceeds 75% of the budget faster than the benchmark, the adjuster may take corrective action or work with the attorney to rework the litigation strategy. You can consider it.
Blended scorecard for panel scoring and tiering
Many carriers distribute litigation unevenly among their panels, with 80% of litigation and paid losses often handled by domestic companies that operate across multiple lines of business and states. It has been. A major carrier leverages a blended scorecard to assess law firm and individual attorney performance based on claim type, as well as compliance with operational guidelines to improve overall outcomes. I am. By matching claims cohorts to historical claims results by attorney and firm, carriers will be able to distinguish top performers from the rest of the panel (or in-house lawyers). At the same time, we streamline the allocation of the most difficult cases and highest hourly rates to the highest-performing firms and attorneys, ensuring their proven expertise is leveraged where it has the greatest impact. This strategic shift to evidence-based panel management optimizes resource deployment and steadily improves overall claims outcomes.
If you want to learn more about how advanced analytics and AI-driven decision support can help people make smarter decisions about litigation strategy, among many other benefits, check out our article Please read. Accelerating the future of insurance through technology report.If you would like to discuss further please contact us Kenneth Saldaña or Jeff Mitch.
