Litigation management technology allows not only better organization of invoices from law firms handling claims cases, but the tools enable carriers to determine the scope and quality of their legal representation.
By Robert Regis Hyle
Two percent of anything may not seem like much, but for the property/casualty insurance industry, which spends about $12 billion a year for outside legal expenses, that two percent can amount to $260 mil- lion in savings if carriers adopted claims litigation management tools, according to Craig Weber, a senior analyst in the insurance practice for Celent Communications. Litigation management savings can come from the mundane (electronic invoicing of legal bills) to the sublime (mining the data from outside counsel to see which firms are saving money for carriers and which are spending too much).
The benefits are multifold, says Lori Lehmann, director of legal initiatives for Nationwide Insurance. The ultimate objective is compliance with our companys billing guidelines. The offshoots of that are the invoices are presented to us in a certain structure, and thats driven by the software application. They are sorted by time, case matter, and law firms. It organizes the invoices and allows for a more consistent workflow across business units.
Invoicing is only one way to save money from litigation management tools, notes Robert Ruryk, program manager for North American Risk Services, the claims administration subsidiary of Clarendon Insurance. After using a tool from Visibillity for nearly two years, Ruryk reports NA Risk just now is seeing the potential to enable the company to make better decisions for Clarendon and other insurers concerning the performance of outside counsel. For us, [the benefit] was more of an accumulation of the data, he says. One of the things that was interesting to us was the actual communication between the adjuster and the attorney. This product makes sure youve got to [communicate]. The adjuster has to go through the process. The attorney has to go through the process. You make sure you have the meeting of the minds somewhere.
There are some differences in the various software systems that are available, but essentially, they all do the electronic invoice piece well, affirms Weber. The two primary components are e-invoicing and matter management. Matter management means understanding by billing code what activity is being billed by the law firm. There are very specific codes for every activity that can take place within a litigation. Under-standing those codes, what level of resources typically is being billed, and what activities those resources are doing is the second tier.
Most carriers will get a fairly significant bump just through electronic invoice management, according to Weber. For example, all the handling-costs savings come right off the bat, and thats a pretty significant jump, he says. The second tier is a fairly sophisticated use of the data that you can get to only once youve mastered the first level of electronic handling.
Critical Mass
Litigation management tools are beginning to reach critical mass among the top 100 P&C carriers in the United States, Weber believes. Most [carriers] have a little bit of experience, and now theyre looking to elevate beyond that initial round of savings, he says. Most carriers put the tool in place and get an immediate efficiency bump just from better handling of the invoices. After that, there are some opportunities to improve internal litigation practices using data analytics to figure out which of your firms do which types of cases particularly well and how long things should take.
Most carriers still are in the first stage, Weber claims, where they are improving the handling of invoices. Most of the top-tier carriers have hundreds of firms they work with, he says. That compounds the problem because they have data coming in from a lot of different sources. It makes automation all that more important.
Lehmann backs that up. Nationwide has more than 800 law firms that use the carriers application from Computer Sciences Corporation (CSC) in varying degrees, she points out. Our volume in 2004 was $180 million in [legal] invoices, she says. You have all levels of expertise in billing clerks within a law firm. Some love computers and will figure out how to get to your Web site and download information. Others, literally, barely know how to use their mouse. It runs the whole experience gamut.
Organizing Invoices
Law firms have their own time and billing software packages that allow the firms to track their own work, how much time they spend performing a task, and the rate they charge for doing that activity, Lehmann explains. Such activities include taking a deposition, going to trial, or simply making a phone call on behalf of their client. In their own billing package, they report what they did and what they are billing [the insurer], she says. The Litigation Advisor e-billing application [from CSC] takes whatever data is in the law firms time and billing software application and brings it into one consistent format. In the process of doing that, it also audits every line item against the software logic. The software logic is designed to reflect our billing guidelines.
Most users will look at cases by type, according to Weber. How often are specialists called in? he asks. How much money is spent for depositions for a certain type of case? You can identify firms that are excessive in how they bill for certain types of cases. You want to steer your business away from those firms.
Attorneys can log in to a secure Nationwide Web site through their browser and bridge the data from their time and billing software application into the Litigation Advisor application, Lehmann explains. The invoices then are submitted to the Nationwide server, which is housed in Scottsdale, Ariz.
Billing problems between carriers and their law firms stem from receiving invoices that dont match a carriers standards for some reason, Weber states. The carrier has to adjust the amount on the invoice and then either pay that adjusted amount to the law firm or negotiate with the firm on some other amount to pay. This leads to confusion because the firm is expecting X dollars, and the carrier pays Y dollars, and its sometimes hard to reconcile the differences, he says. The [law firms] have a series of invoices at any given time, so its hard for them to figure out what the carrier is paying and why it is paying it. One of the benefits of automation is it allows the firms to understand what they are getting paid for and why. If they submit an invoice that is rejected for some reason, [the application] allows [the law firms] to research [the bill] more easily. Some of the law firms can get on a Web-based interface and look at all their outstanding invoiceshow much was billed, how much was paid, and where the adjustments were. All by itself, thats a pretty significant improvement over the old manual method.
The attorneys receive other benefits from the system, as well, continues Weber. From the firms perspective, just getting paid faster is a huge benefit, he says. Some [firms] are willing to change their billing method and use electronic invoicing simply because theyll get their money faster. Once the invoicing is electronic, you can apply automation, you eliminate mail time, you eliminate manual handling, and you eliminate data entry. Those are all good things for both the firm and the carrier.
Theres More
When the attorneys get a case assigned to them, Ruryk says, theyll go through their own budgeting process and theyll enter the information into their own system. The data comes back to the carrier in a format that is recognized and identifiable for each adjuster. The adjuster will look at the case and ask questions, such as: Do they really need all those depositions? Ultimately, the adjuster will make a decision. The level of detail they have to go through and the budgeting process make sure the adjusters see what the attorney is thinking, says Ruryk. It also points out certain things that might be missing from the file, such as rather than getting a deposition from someone, the adjuster can get a statement from the person, which will be a lot cheaper. [The data] also will make the adjuster aware on a case-by-case basis what it is going to cost to litigate. Maybe it makes more economic sense to settle the case.
Once a carrier has enough data accumulated, Weber believes it can begin to analyze the data and identify trends that will help it refine its billing. From the carriers perspective, that means understanding which are your best providers and how they handle cases, he says. You can refine your billing guidelines and then apply those to all of your providersall of your law firms. There also are true collaboration elements to many of these programs where law firms can understand how they are providing services better. They can budget and allocate resources better because they will understand what is being billed and how many hours a certain carrier is giving them in work. There are collaboration opportunities. Thats a very real benefit.
Its critical for carriers to have enough data, he adds. What you see is carriers typically go out and install one of these systems, aggregate and collect data for a year or so, and then start to use that data, says Weber. You can start to flag cases that fall outside the norms. Some of the larger firms that have the biggest exposure are well on their way to that. Some of the smaller firms are just getting to that. Its no surprise to anyone litigation management costs are significant and have to be managed. The tools have gotten a lot better.
Ruryk agrees. After two years of using the system, his company now is starting to get what it feels to be statistically reliable data, he claims. We made sure each attorney had at least 50 cases closed before doing any in-depth reporting, he says.
Risk NA studied the results from one attorney in particular and found the attorney actually was 50 percent higher in terms of negative outcomes than his fellow attorneys, and the attorneys expenses were even higher, too. If both loss costs and expenses are high and they are handling the same kind of cases, you may have an issue there, says Ruryk. Thats based on quantitative study. The adjusters also have a subjective measure, and what the adjusters seem to perceive subjectively is borne out.
Thanks to the Visibillity system, adjusters have access to a lot of the data for their files, according to Ruryk. Now that were really getting comfortable with this tool, I suspect well probably have quarterly meetings where we can go over this stuff with the attorneys. Its a neat measuring tool.
Extra Benefits
The software package has given Nation-wide a kind of afterthought benefit, Lehmann believes. We can do reporting on invoicing we could never capture before, she says. This always was a manual process. An invoice was sent in the mail to the client handlers desk. It laid there for 60 days, got paid, and was put in the file. Today, [the invoice] arrives electronically, it goes into the database, and anything in a database you can report off of. So we do.
Nationwide looks more at how law firms are performing in the way of billing. Do they bill us timely? Do they bill us in accordance with our agreement to their rates? Do they bill us in accordance with our billing guidelines? Those are the things we can look atpatterns and trends across a law firm, across law firms in a state, or across law firms that work on a particular kind of case. Things like that, Lehmann says. You can make some performance evaluations, but they dont hold as much water as something like settlement amounts or fees that are billed.
Nationwide has the ability to work with the software to change billing guidelines, and the software adapts to the changes. We think thats a powerful feature, says Lehmann. We have the ability to write new reports and query the database for things somebody might think of this week that we didnt think of two months ago. Its a very dynamic tool. What is created for you doesnt have to stay static. You can change it and enhance it.
An example of changes in billing guidelines might involve asking firms to wait until they have a minimum of $500 to bill the carrier. The software can be changed to reflect the invoice needs to be $500 before you get a bill, she says. The reporting tools can tell us how many hours a lawyer works in a day. If a lawyer works more than 24 hours in a day, we go back in and look at the invoices and contact the law firm to talk about it. We can look at how much time a law firm spends in a certain phase of litigation. There are pieces of data available to you to look at trends and patterns. Then you use your judgment to determine whether it means something or not.
You can beat up providers that are not performing to your standards, Weber adds. And for your best performers, you can help them manage their business better. It really should be positioned as a win-win for the carriers and the law firms.
Gaining Experience
From the experience with the one low-performing attorney, NA Risk recognized it can quantify the savings, Ruryk believes. If we had just got this attorney down to the average, we would have saved X dollars, he says.
Were in our fourth year [with the tool], says Lehmann. Nationwide actually co-developed this application with CSC. We were at the forefront of taking this to the marketplace. In our initial rollout, it was very slow and tedious because it was all new. Today when you roll out firms, its easier because either they use it already for another client or they use another e-billing package from a competitor. As the law firm universe matures in its use of technology and e-billing, this becomes easier to do.
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