Claim Costs - How to Keep Control of Your Defense Dollars
February 05, 2015| By Paul Ruiz |
The increasing cost of defending cases in litigation is a concern for all casualty companies. The reasons are varied and may be related to upward claim severity trends, and more aggressive plaintiff attorneys. Whatever the cause of rising litigation spending, claims departments can find ways to contain costs while maintaining high-quality representation for their insureds.
Before discussing expense control after claims arise, it makes sense to first consider the important role of risk management in preventing claims in the first place. It really pays for claim and risk management departments to share information and coordinate their efforts.
Sharing stories from claims and circumstances that led to frequent or severe outcomes can have a big impact. Closed claims where the identities of the parties and case facts are sufficiently altered to preserve anonymity are an especially rich source of material.
Once a case has gone into litigation, having protocols in place that are understood and agreed upon by the defense firms and monitored by the carrier can help to promote efficient and focused defense counsel efforts. There must be a clear understanding by all parties of the required defense counsel activities, reporting expectations and required levels of communication. Roundtabling select cases with defense counsel at key points during the litigation may be helpful in agreeing on a claim resolution strategy that can avoid unnecessary expenditures. Also, if additional work up is needed, then specific activities can be agreed upon.
We’ve seen different approaches taken by carriers, often with their own variations on the same theme.
A good best practice adopted by some claim departments is to establish and monitor Litigation Management Guidelines that defense panel attorneys have agreed to follow. These often include reporting requirements to the carrier and requesting carrier permission for certain activities. While departures from them may be needed in select circumstances, defense counsel should discuss and seek agreement from the carrier. Their value is negated when they are not consistently followed or monitored.
Some companies have focused on containing litigation costs by negotiating flat fee billing arrangements with their panel firms. Because of the potential for flat fee arrangements to incentivize some firms to do as little work as possible, some carriers elect to use them for specific tasks or budgeting for stages of the case, with bonuses related to timing of case resolution.
Other complementary approaches can include using in-house defense counsel, tracking costs and performance by firm and attorney, and keeping an expert database for both plaintiff and defense experts. Such a database can be used to track effectiveness as well as cost.
Deciding whether to settle or defend is also key. Companies that can quickly identify cases suitable for settlement and negotiate a resolution - whether those cases are in litigation or pre-litigation - can contribute greatly to defense costs savings. Likewise, opting to use Alternative Dispute Resolution (such as binding arbitration) is less expensive than a trial and can be concluded relatively quickly.
While appropriate selection and monitoring of defense counsel is a key topic when discussing expense control, so is the carrier’s claims resolution philosophy and level of proactive claim handling. I also want to emphasize that the relationship between carrier and defense counsel hinges on professionalism, trust, shared expectations and open communication. By ensuring a clear, mutual understanding of the expected duties of everyone involved, it’s possible to foster a healthy long-term partnership as well as a more efficient use of defense dollars.
You can read my more detailed article regarding controlling expenses.