It’s no surprise to anyone working in insurance claims to hear that litigation costs are rising. However, it may be a surprise to some to learn that increases in outside counsel rates are not to blame. While litigation spend has gone up dramatically in the last few years, the most recent Real Rate Report® – published by Wolters Kluwer’s ELM Solutions and powered by the LegalVIEW® database of over $115 billion in legal invoices – shows that average legal rates during that period have remained about the same. With that in mind, what can claims organizations do to control litigation spending? A lot, as it turns out. The following Real Rate Report findings provide some context on increasing costs.
Geography impacts spend
While average rates overall haven’t shown drastic changes, there were sharp increases in some large cities, especially in larger firms. In some locations, while larger firms raised rates, smaller firms did not – some even decreased rates for some roles. However, this dynamic showed a lot of variation from one city to another, so it is important for claims departments to have a clear understanding of the trends in the specific areas where they are engaging outside counsel. This knowledge can be used to your advantage when negotiating with firms during annual reviews or making decisions about case assignment.
Smaller firms can mean smaller bills
While corporate legal departments typically engage very large firms – whose rates have risen faster than those of smaller firms – for most of their outside counsel work, it is more common for insurance claims litigation to be managed by smaller firms. This can be an advantage for claims departments looking to keep costs down. Claims litigation is often tied to the jurisdiction where an incident has occurred, inhibiting the insurance carrier’s ability to relocate the legal work to a geographical area where rates are lower. However, by understanding the cost trends by firm size, claims professionals may be able to reduce costs by assigning cases to smaller firms where rates are not climbing as quickly.
Heavy billing predicts costs
When a single timekeeper invoices for more than 10 hours per day, it is known as heavy billing. The Real Rate Report shows that heavy billing is more common in insurance claims cases than in other litigation matters, emphasizing the importance of matching the right attorney to the right case. Heavy billing isn’t necessarily a problem – long hours are often required for attorneys to meet their clients’ goals – but recognizing billing patterns can be helpful for both planning spend and reigning it in.
When partners and associates engage in heavy billing across more than 10% of days, they are also more likely to heavy bill for more than 40% of their overall hours. This type of insight can help claims departments project their spend more accurately and focus periodic evaluations on those timekeepers who are billing the most time.
Estimate case duration to plan for costs
The Real Rate Report shows that partners in claims matters are more likely to be involved in litigation of shorter duration, while work on claims litigation that lasts longer is spread more evenly between partners and associates. Claims managers can use this information to more accurately project costs based on the estimated matter life. Since claims litigation also typically involves more partner time, claims departments may also consider requesting that firms use associate or paralegal time where appropriate.
When rates remain relatively flat, but litigation costs climb, claims managers need reliable data about which levers they can pull to control spend. The insights that can be gained from the LegalVIEW database make it easier to understand the factors that lead to higher costs and to drive improved performance and increased value.
For more detailed information, including six recommended steps for controlling litigation spend, download our white paper Controlling Claims Litigation Costs in an Era of Flat Rates.