New P&C claims management techniques | Insurance Blog
According to AM Best Financial reports, between 2018 and 2023, litigation costs in the combined Property & Casualty industry increased by 19%, amounting to an increase of $4-5 billion, or in context, making litigation costs reach ~$24B for LAE.
In both personal and commercial lines, carriers have experienced the negative effects of social inflation. While certain states and submarkets, such as California and Florida, continue to be known as problem areas, carriers are reviewing their handling of claims files across the board.
Plaintiffs have recently obtained significant decisions against carriers, with the ability to look everywhere with carriers to develop defense strategies for “nuclear decisions” that increase the overall cost of risk to businesses and consumers. According to AM Best, many of these decisions are also in line with the new way of handling cases as an asset class. This trend is fueled by private equity and hedge funds seeking to create new sources of uncorrelated returns for investors from these settlements.
The insurance industry is modernizing its case management approach by adopting new legal management systems, improving data cleanliness of claims core systems, and using advanced analytics and AI-driven decision support. This flexibility in data usage improves the accuracy of claims settlement, enabling leading carriers to develop more efficient methods of settling claims.
An important development in this domain is the creation of a Case Analysis Record (LAR) which provides the ability to view data across silos that were previously stored. This tool integrates internal and external data about defense counsel, plaintiff’s counsel, plaintiffs, policyholders, and more, providing a comprehensive view of all case data in a single table, ripe for data analysis and AI/ML processing at scale. It creates a very rich data set that allows for advanced classification and pattern recognition. These new insights have now reinvigorated the old foundations of case management.
The three main areas of focus where carriers resolve lawsuit claims most effectively are:
- Litigation Strategy: Advanced Analytics and AI-Led Decision Support
- Advanced Consultant Selection Criteria
- Panel Performance Management and In-house Counsel
1. Litigation strategy: advanced analytics and AI-led decision support
In recent years, the insurance industry has undergone major changes driven by the explosion of data availability and the migration of data to the cloud. This change has allowed carriers to more easily access and integrate data sources, including third-party information. As a result, insurance companies have established new teams of claims experts and data experts dedicated to uncovering insights and unlocking value from their data, leading to improvements in the way claims are handled and a shift in the claims operating model.
Notably, the use of AI has contributed to understanding the expected costs and complexity of each case, facilitating the creation of efficient case plans and budgets based on composite insights from internal and external data sources. By having a clear resolution process, carriers can minimize litigation costs while ensuring more accurate payouts.
Some important use cases include:
Claimant lawyer profiles: By analyzing historical data, carriers can discover behavioral patterns among claimants who often bring lawsuits against insurance companies. This information can help insurance carriers better understand the motivations and strategies of these attorneys, ultimately helping to develop more effective defense and negotiation strategies.
Tactics: Carriers can use internal and external data sources to create a comprehensive view of each case, including information about the parties involved, the location, the nature of the case, and other relevant factors. This “single pane of glass” approach can inform decision-making and improve collaboration between lawyers and adjusters, leading to improved outcomes.
2. Improved mentor selection process
Using the aforementioned Case Analysis Record (LAR) to understand the relative size and scope of the law firm’s panel and the ability to review historical case results is important when assigning cases. By using data on an attorney’s performance, carriers can match the complexity of a case to deliver the best overall claim results by using a personalized counsel selection tool or framework. Additionally, visibility into the number of cases assigned to each firm can help carriers expand the mix of open issues in complexity to increase the effectiveness of their firms and panels.
Historically, giving advice was often based on the relationship between the adjusters and the lawyers or the recommendations of their superiors. However, developing advisor selection tools and frameworks that guide the claims adjuster’s influence in providing advice based on data and analysis can be a strategic approach.
3. Panel performance management and internal counsel
C-Suite Insurance executives are facing increasing pressure to understand how capital expenditures support strategic requirements, especially for critical items with high financial impact, such as outside attorney fees. The top 50 carriers in 2022 spent an average of $500 million in litigation costs, with outside attorney fees typically accounting for 80-90% of these costs, depending on their business letter, litigation strategy, and in-house counsel skills.
However, Chief Claims Officers often need to be more specific about the overall results they receive from these capital expenditures by focusing on both the costs of the case and the compensation associated with those cases.
Leading carriers use data-driven solutions to gain insights into advisor performance to improve legal spending. By combining the metadata of claims and legal management records with billing system data, carriers can identify top-performing attorneys, ensure compliance with carrier guidelines, and balance their legal panel to maintain efficient services.
Carriers often start by creating an integrated scorecard that combines these disparate sources of data to provide a single source of truth to illuminate the performance of firms and attorneys through deliverables.
A highly effective legal panel is critical to successfully defending insureds when a claim is filed, especially in commercial lines businesses. Some carriers have successfully highlighted the power of their claims performance to brokers and agents, selling confidence in their ability to deliver more than policy value when needed.
The main use cases include:
Improved case monitoring and escalation mechanisms
Carriers can use event-based triggers and cost tracking to monitor case progress against historical metrics provided by the Case Analysis Record. This enables them to make quick decisions about growing cases and allocate resources at the request level, promoting an activist approach to file management. Increased automation management, resulting from flagged changes in request profiles and cost variances, provides improved oversight of backlogs, allowing front-line managers to focus their time more effectively with their teams. Carriers with high quality data hygiene have taken extra steps, enabling them to deal with and predict individual files before they go off track, leading to improved results.
Compliance with case plans and budgets
Incorrect budgets can lead to poor booking practices, especially for carriers without visibility into the quality of budgets provided by consultants. Event-based spending triggers, from the Case Analysis Record, provide visibility into cases deviating from their original case plans and budgets. These event-based triggers help managers and front-line managers stay on track when budgets change, spending forecasts, or activity numbers deviate from expectations. Changes in these event-based triggers can lead to effective re-planning of litigation strategies based on file development. For example, if a claim is initially classified as “low complexity” but exceeds 75% of the budget quickly than the limit, the adjuster can take corrective action or work with an attorney to reassess the file’s trial strategy.
Integrated scorecard for scoring and tiering
Most carriers distribute cases among panels unevenly, typically with 80% of cases and loss coverage being handled by National Firms that serve multiple lines of business and regions. Leading carriers are developing integrated scorecards that not only assess law firm performance and individual attorney performance based on claim types but also measure adherence to their performance guidelines to improve overall results. Aligning claims collections with historical claim results by attorney and firm allows carriers to distinguish their top performers from the rest of the panel (or in-house attorney). At the same time, it facilitates the allocation of the most challenging cases and the best hourly rates to the best performing firms and lawyers, ensuring that their proven expertise is used where it has the greatest impact. This strategic shift to evidence-based panel management improves resource utilization and progressively improves application outcomes.
If you’d like to learn more about how advanced analytics and AI-led decision support can help people make smarter decisions about litigation strategies, among a host of other benefits, please read our Fuel the future of insurance with technology report. If you would like to discuss further, please contact Kenneth Saldanha or Jeff Mitch.
