As two bastions of tradition, neither the legal profession nor insurance carriers eagerly jumped onto the Internet bandwagon in the late 1990s.But now, the dust of the dot-com wreck is settling, and carriers and their counsel are beginning to see where it makes sense for them to use online technology to manage legal costs and improve collaboration.

Not surprisingly, the Internet is proving itself useful in electronic billing and payment, communication on case planning and budgets, and collecting legal performance data.

"Managing outside legal counsel is one of the few remaining business areas that is not routinely supported by technology," says Joe Jensen, executive vice president of Cost Containment Solutions for Computer Sciences Corp.'s (CSC) Financial Services Group, El Segundo, Calif. CSC offers a tool, called Litigation Advisor, which The Chubb Corp. selected last year to manage its external legal expenses.

Despite the fact that insurers spend almost 9 cents of every premium dollar earned in the liability lines on legal defense costs, only one-third of claims become lawsuits, and only 2% are settled by court verdict, according to the Insurance Information Institute, New York.

With the vast majority of claims settled out of court, the Internet is beginning to play a role in reducing the time and inevitable costs involved in settling claims-especially for low severity cases.

Online resolution

Several carriers-including Liberty Mutual Group, Seneca Insurance, and Travelers-are using an online dispute resolution system invented by two attorneys who worked on opposite sides of a case.

Hung up on a settlement amount, the two attorneys agreed to secretly write down their bottom-line offer and submit it to the court clerk. They agreed if the requests were within $5,000 of each other, they would settle the case for the middle amount.

When the clerk looked at the numbers, they were within $1,000, and the Mt. Kisco, New York-based company called Cybersettle was born. But now, using Cybersettle, insurance carriers submit three offers in a patented double-blind bidding process through a secure Web site, instead of writing offers on paper. The attorneys are notified, and likewise submit three confidential rounds through the site.

Cybersettle compares the numbers, and based on a standard formula, determines if the case is settled and alerts both parties.

Travelers Property Casualty Corp. has been using Cybersettle for low severity, third-party tort claims for four years. Approximately 1,000 claim handlers at the Hartford, Conn.-based insurance company are using the system, says Paul Brown, second vice president, claims services, at Travelers.

Moving inventory

In a study of several carriers using Cybersettle in 2000, Bermuda-based Accenture (then Andersen Consulting) found that cycle time from first notice of loss to settlement had reduced 25% by using the online system-and, cycle time from the first offer to settlement had reduced 50%.

"We're not really seeing reductions in terms of the settlement values-because, frankly, we evaluate each case and put the fair money on it," Travelers' Brown says." The true impact of the system is in moving the inventory, he says.

"The claim business is like any other business: Inventory costs money. And since most suits in America get settled-as opposed to litigated-we have a lot of unnecessary costs associated with getting into the preliminary stages of litigation."

Those costs can be reduced significantly by productive negotiations and online settlement tools, he says.

For high severity cases, such as environmental, asbestos, and mass tort claims, the Internet is also helping carriers manage legal costs.

According to the Insurance Information Institute, defense and cost containment for liability lines of insurance in 1999 accounted for 13.1% of all incurred losses.

Asbestos lawsuits alone have cost insurers more than $30 billion to defend and settle, according to information from the Independent Insurance Agents & Brokers of America, Alexandria, Va. In addition, the total pay-out for asbestos claims is expected to reach more than $250 billion.

For several years, carriers have attempted to reign in legal fees associated with complex lawsuits by using third-party auditors-companies that scrutinize legal bills after cases are settled.

But many insurance litigation specialists say auditing legal firms has caused serious damage to the carrier-counsel relationship.

"Two years after you've paid the final bill, you're coming in and saying (to the lawyers), 'I think you charged me two hours too much.' That's ridiculous," says Barbara Murray, senior vice president of Insurance Run-Off Consultants, a division of Argonaut Insurance Co., San Antonio.

"You need to review legal costs as they occur, not two years after the fact," she says.

For more than a year, Argonaut has been using an online collaborative litigation management tool for environmental, asbestos and assumed reinsurance claims.

Online collaboration

With this tool, from Chicago-based Visibillity Inc., an insurer can collaborate with outside law firms via a secure Web site to set up cases, establish litigation plans, analyze bills, submit invoices, and run reports.

The tool is working to reduce legal fees, as well as to improve strategic case planning, according to users.

For example, Argonaut had instances where legal bills were each reduced 15 to 20 hours during the first months of using the Visibillity tool. This was the direct result of being able to capture, sort and analyze itemized tasks over time, Murray says.

Another Visibillity user, who wishes to remain anonymous, says online collaboration is improving relations with the 50 or 60 law firms that provide counsel to her department, which handles environmental and mass tort claims at a Midwest-based carrier.

"We want to have the conversation about planning and budgets up front, and take the 'cat and mouse' out of the relationship," she says.

Better communication with lawyers and better data collection are two key benefits of using online litigation management, users say.

For example, Visibillity enables a carrier to analyze and compare attorney-specific case data, including: how long cases are open; indemnity and defense costs; juridictions where cases settle vs. go to trial; the types of cases that settle vs. those that go to trial; and results of cases that settle early vs. late in the process.

According to users, this level of data not only enables them to assess law firms using cost-benefit analysis, but it also helps them match firms to cases according to expertise and proven results. Data may show one firm excels in negotiating settlements, for example, while another obtains desired results in court.

Overall, online litigation management tools are empowering carriers to work more effectively with their counsel, according to Argonaut's Murray. "What I see happening now is a shift in this industry from being reactionary to being proactive, which is a huge change," she says. "Visibillity is the first tool that has really given us an edge in terms of controlling our own destiny."

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access