arrive AM Best Financial ReportLitigation management costs for the combined property and casualty insurance industry increased by 19% between 2018 and 2023, increasing by $4-5 billion, or, for context, total litigation costs to approximately $24B in LAE.
In both the personal and commercial sectors, carriers have experienced the adverse effects of social inflation. While certain states and coverage markets, such as California and Florida, are still considered problematic jurisdictions, carriers are modifying their approach to managing litigation claim filings across the United States. board.
Plaintiffs who have recently obtained significant judgments against carriers have been able to strategize across jurisdictions and carriers to secure “nuclear verdicts” that increase the overall cost of risk to businesses and consumers. Best in the morning, many of these decisions are also consistent with the emerging trend of treating litigation as an asset class.The driving force behind this trend is Private Equity and Equity Hedge Funds Seeking to create new sources of uncorrelated returns for investors from these significant settlements.
The insurance industry is modernizing its approach to litigation management by adopting new legal management systems, improving data hygiene in core claims systems, and leveraging advanced analytics and AI-driven decision support. This revolution in data utilization is improving the accuracy of claims settlement, allowing leading carriers to develop more efficient ways to resolve litigation claims.
A key development in this area is the creation of Litigation Analysis Records (LAR), providing the ability to view previously siled data. The tool consolidates internal and external data on defense attorneys, criminal attorneys, claimants, policyholders, and more, providing a comprehensive view of all litigation data in a single table that is ripe for large-scale analytical insights and AI/ML processing. . It creates richer data sets that enable advanced segmentation and pattern recognition. These new insights have now relaunched traditional litigation leverage litigation management.
Three main areas of focus for carriers to proactively resolve litigation claims more effectively are:
- Litigation Strategy: Advanced Analytics and Artificial Intelligence-led Decision Support
- Strengthen lawyer selection criteria
- Performance management of teams and in-house counsel
1. Litigation strategy: advanced analysis and artificial intelligence-led decision support
In recent years, the insurance industry has experienced explosive growth in data availability and a major shift toward moving data to the cloud, which has allowed operators to easily access and integrate data sources, including third-party information. The company has launched a new team of claims experts and data professionals focused on discovering insights and unlocking value from data to improve how litigation claims are resolved and transform claims operating models.
Notably, the use of artificial intelligence helps understand the expected cost and complexity of each case, helping to develop effective litigation plans and budgets based on combined insights from internal and external sources. By having a clear path to resolution, operators can optimize litigation costs while ensuring more accurate settlements.
Other important use cases include:
Brief introduction of the plaintiff’s lawyer: By analyzing historical data, insurance companies can discover behavioral patterns of defendants who frequently file lawsuits against insureds. This information can help insurance companies better understand the motivations and strategies of these complaints, ultimately helping to develop more effective defenses and lawsuits. Negotiation strategies.
Strategic positioning: Operators can use internal and external data sources to build a comprehensive view of each case, incorporating information about the parties, location, case type and other relevant factors. This “single pane of glass” approach can inform decision-making and enhance collaboration between guilt and moderators, thereby improving outcomes.
When assigning cases, it is critical to utilize the Litigation Analysis Record (LAR) in question to understand the relative size and scope of the group of law firms and the ability to review historical case outcomes. By leveraging attorney performance data, operators can match case complexity. Provide the best overall outcome for your claim through a customized attorney selection tool or framework. In addition, visibility into the number of cases assigned to each company can help carriers optimize the mix of open matters by complexity, thereby maximizing the performance and regret of their case companies.
Historically, assignment of counsel was often based on the adjuster’s relationship with the litigation or the recommendation of his or her manager. However, developing attorney selection tools and frameworks to guide claims adjusters in allocating attorney influence based on data and analytics may be a more strategic approach.
Insurer executives are under increasing pressure to understand how major expenditures support strategic needs, particularly items with significant financial implications such as outside defense attorney fees. The top 50 insurance companies spent an average of $500 million on litigation expenses in 2022, with outside counsel fees typically accounting for 80-90% of these costs, depending on their scope of practice, litigation strategy and in-house counsel capabilities.
However, chief claims officers often need to gain a clearer understanding of the overall results they are getting from these large payouts by focusing on the litigation costs and awards associated with these cases.
Leading carriers use data-driven solutions to gain insights into attorney performance to optimize legal spend. By combining claims record metadata with legal management and billing system data, carriers can identify top-performing litigation, ensure compliance with carrier guidelines, and rationalize their legal groups to maintain efficient resources.
Operators typically start by creating a hybrid scorecard that combines these disparate sources to provide a single source of truth that illuminates the company’s performance and litigation and the results delivered.
A high-performing legal team is critical to effectively protecting insureds when claims are made, particularly for commercial lines businesses. Some underwriters have successfully highlighted the strength of their claims business to brokers and agents, giving people confidence in their ability to provide value beyond the policy price in times of need.
Key use cases include:
Advanced case monitoring and upgrade paths
Carriers can leverage event-based triggers and charge tracking to monitor case progress against historical benchmarks provided by litigation analytics records, which enables them to make proactive decisions at the claims level about escalating cases and allocating resources, thereby promoting proactive claims Method file management. Automated management upgrades triggered by flagged changes in claims data and expense discrepancies enhance oversight of pending documents, allowing frontline managers to effectively focus their time on their teams. Carriers with high-quality data hygiene have taken further steps, allowing them to predictively process single files before they deviate from the optimal path, thereby improving outcomes.
Adhere to litigation plan and budget
Inaccurate budgets can lead to poor retention practices, especially for carriers who are unable to understand the quality of the budget provided by their attorneys. Spend and event-based triggers derived from Litigation Analytics records can provide visibility into cases that deviate from original litigation plans and budgets. These event-based triggers can help frontline staff and managers respond to budget changes, spend forecasts, or task volume deviations. Stay on track when expected. Changes to these event-based triggers can result in proactive adjustments to litigation strategies based on developments. For example, if a claim is initially classified as “lower complexity” but exceeds 75% of the budget faster than baseline, the adjuster can take remediation action. measures or work with an attorney to reconsider the filing’s litigation strategy.
Hybrid scorecard for group scoring and stratification
Many carriers allocate cases unevenly among panels, with typically 80% of cases and paid losses handled by national law firms operating across multiple business lines and states. Leading carriers utilize hybrid scorecards that not only evaluate the performance of law firms and individual attorneys based on claim type; Compliance with its operational guidelines is also measured to improve overall results. Aligning claims queues with attorney and company historical claims results allows carriers to differentiate their top performers from the rest of the group (or in-house counsel). At the same time, it also streamlines the assignment of the most challenging cases and the best hourly rates to the top-performing firms and defenses, ensuring their proven expertise is utilized where the impact is greatest. This shift in evidence-based panel management strategy optimizes resource deployment and steadily improves overall claims outcomes.
If you want to learn more about how advanced analytics and AI-led decision support can help people make more informed decisions about litigation strategy, among many other benefits, read our Powering the future of insurance through technology Report.If you would like to discuss in more detail please contact Kenneth Saldanha or Jeff Mickey.