Utilizing data-driven transparency in claims litigation
Insurance defense firms are already feeling the effects of social inflation and a rapidly digitizing court system.
The wave of pandemic-related backlogged and emerging claims cases is beginning to crest, and it’s about to wash over a landscape of potential verdicts driven by social inflation delivered by a rapidly digitizing courts system. Insurance defense firms are feeling the effects already. As they brace for this next phase of claims litigation, firms will need to practice a new form of data-driven transparency with the carriers they serve.
Increased transparency can help mitigate legal risks, reduce litigation costs and enable insurance defense firms and carriers to navigate this shifting terrain in a collaborative, efficient way. But first, they will have to clear the fog by embracing new innovations and processes that leverage data to enable coordinated efforts.
Increased litigation calls for improved collaboration
The world of insurance claims litigation is undeniably different today than it was just a few years ago. The start of the pandemic saw a sharp decline in claims as courts across the U.S. shut down to comply with social distancing mandates. Existing cases were set aside until courts reopened. Court backlogs increased by an average of one-third during the pandemic, according to Thomson Reuters.
As the pandemic wore on, it became apparent that it would have wide-ranging legal consequences. Last year, the American Bar Association (ABA) predicted the pandemic will lead to more litigation than any other incident in U.S. history. Of all the legal sectors impacted, the ABA maintains that insurance litigation claims make up the lion’s share of suits and issues attributed to the pandemic.
Insurance carriers’ concerns surrounding the volume of claims resulting from the backlog and subsequent surge are compounded by an ongoing trend of runaway verdicts, a label often applied to jury verdicts that exceed $10 million. A review by VerdictSearch showed a more than 300% increase in the frequency of verdicts of $20 million or more in 2019 when compared to the annual average from 2001 to 2010. The trend may continue due, in part, to social and corporate governance movements. Experts note that biases linked to rising awareness of corporate misconduct and generational shifts make jurors more likely to see themselves as agents of social change.
Frequency and severity of verdicts aren’t only a concern for carriers and their defense firms, but policyholders who are forced to pay higher premiums to account for escalating damages or fines levied post-verdict. Unaffordable insurance exposes underinsured businesses to risk that perpetuates the cycle of litigation. Amid a deluge of backlogged and emerging cases and heightened stakes, insurance defense attorneys face mounting pressure to manage multiple cases, perform due diligence and reassure clients efficiently and effectively.
Removing barriers to build trust
Traditionally, insurance carriers embroiled in claims litigation have a desired end result but may not have clear insight into how the defense team intends to achieve it. Case outcomes and legal fees incurred are traditionally the only indicators of whether a case is successful. Increased transparency into defense firms’ processes has become imperative. However, it can only effectively be achieved through digital transformation.
Firms that adopt legal technology such as practice management software are better equipped to serve clients and optimize processes to meet the standards of a rapidly digitizing world. For insurance defense attorneys in particular, legal practice management software may help them gauge the cost of services more accurately so they can provide clients with realistic estimates, a key step in building the trust required for effective client-counsel collaboration. A 2021 Thomson Reuters Institute survey found that more than half of all cases exceeded their initial price estimate. Researchers attributed this to the fact that three-quarters of cases changed scope as they progressed. In 30% of these cases, the scope of the matter had changed dramatically.
When asked to consider a recent matter where the defense attorney and the client team could have done better, more comprehensive briefings from both parties were among the most cited improvements. This illustrates a critical point that better client-attorney collaboration is overdue. Collaboration is a two-way street, meaning carriers also have a responsibility to improve transparency in interactions with their law firm partners. For example, carriers might want to collect claims satisfaction data and share it with counsel, as this can help defense firms gain a deeper understanding of the carrier’s history with the plaintiff, their typical interactions with policyholders, as well as their reputation. Such datasets might add context to a defense argument.
Carrier transparency can help attorneys build their case as well as their craft. Clearly defined expectations regarding cost and frequency of communications help lawyers understand how their performance is being measured. The good news is that many insurance industry executives are willing to share data regarding the firm’s performance.
Data-driven transparency for revelatory insights
Numbers illustrate value for clients more effectively than well-worn anecdotes and client testimonials. Today’s advanced practice management software allows for increased visibility between carriers and their law firms, with reporting and analysis capabilities that can seamlessly display budgets, spend, and other key performance indicators. Firms can harness this real-time data to provide clear insights regarding improved outcomes compared to the cost of legal services. This allows firms to uncover which methods work and which don’t, and adjust operations accordingly.
Embracing this level of transparency not only helps defense firms meet client expectations and keep pace with a rapidly evolving legal environment, but it also helps them glean knowledge that can lead to positive outcomes. Law firms and carriers can leverage software to set up processes that aggregate and organize data for clearer insights that aid in decision-making for reduced risks and costs. For example, access to accurate and relevant data can help firms provide earlier valuations, which allows carriers to weigh litigation strategy and set aside appropriate reserves. The goal is to make better decisions faster that lead to better outcomes through the use of enabling technology.
In addition to technology’s ability to enable insights and high-level collaboration, many practice management platforms also have the capacity to streamline and automate more mundane responsibilities like document management or time capture. Technology empowers both more efficient operation and better communication. Defense firms can stay connected with carrier clients and provide them insight into their options as well as updates related to the progression of their case.
The takeaway: Ensuring process keeps pace with progress
At the core of digital transformation and radical transparency is data. As insurance defense firms aim to win increasingly complex claims litigation, and as carriers grapple with mounting post-pandemic lawsuits, knowledge sharing and collaboration will soon become table stakes.
Insurance defense firms will need to adopt robust tools that produce value-add insights and streamline information-sharing with clients. By implementing end-to-end practice management technology that breaks down silos, law firms and insurance carriers can enable a frictionless process that leads to better outcomes and continued evolution.
Furthermore, the benefits of legal technology adoption often yield maximum return on investment (ROI) when supported by systemic change. Key considerations include:
- Improving data hygiene. This should top every defense firm’s agenda, as indecision stemming from a glut of data is a common hurdle to the change management process. Data collection and prioritization should be a coordinated effort on behalf of the carrier and defense firm. Both parties should agree on how data will be applied to the decision-making process.
- Accessible data. Access to well-organized, relevant metrics on both ends is vital to improve collaboration. Firms might consider publishing case metrics that meet key criteria, like financial thresholds, based on indemnity or expense. They can also produce self-audit reports of each case that includes court deadlines, relevant carrier deadlines, and internal deadlines set by the firm.
- Performance evaluations. An important pillar of systemic change is firms ensuring a continuous feedback cycle for their lawyers. Attorney performance can be determined according to factors such as valuation and budget accuracy, average case lifecycle, compliance with internal deadlines, and billed/budget percentages (or realization rates). All in service of improved outcomes over time.
Bob Taylor is Managing Director, Deloitte Legal Business Services Deloitte Tax LLP and Ari Treuhaft is the President and COO of Litify.