Knocking down the costs

A system that manages the entire legal process in a claim including making decisions on whether to go to trial could save insurers millions of pounds in costs. Elliot Lane reports

Last year, the continuing debate over litigation costs in the wake of the Woolf reforms led to strained relations between lawyers and their insurer clients. This year the pressure will be on, as the majority of the big insurers start to re-assess the way the traditional panel system works.

Many lawyers are bracing themselves for the inevitable - that their work will be more specialised and focused on one class of business, or that their insurer clients will expect to see more competitive fees from firms.

Fixed fees, used by the defence for many years, are now becoming a reality for claimants too.

One legal firm has bitten the bullet and taken the first step to alleviate the strain. Hugh James, which gained a highly commended place in this year's Insurance Times 2003 Awards for Insurance Law Firm of the Year, has devised a system, called Streamline 21, to handle pre-litigation claims as well as providing fast track and multi-track litigation services.

Lawyers' costs
Hugh James has carried out its own research on the way the insurance market approached pre- and post-litigation work and how it interacted with liability lawyers.

Its research found that an insurer with a claims portfolio of 5,000 litigated claims with an average settlement of £3,500, would face an annual legal spend in excess of £20m.

Hugh James partner Philip Dicken, who heads Streamline 21, says: "In other words, lawyers' costs are a huge problem for the industry. We have to address this and find a solution."

He says the claims handling solution can cut the claims process from eight to nine months down to just two months.

Dicken says the claim process was also hampered by the failure of insurers to keep accurate management information.

Legal case management software specialist Solicitec supplied the basis for Streamline 21, but then Hugh James designed a bespoke system.

The system can reduce the lifecycle of the claim because it manages every claim. Since its formal launch two months ago, insurers have begun to use the system on a delegated authority basis. However, Streamline 21 has now been refined to offer insurers the benefit of fixed fees for those cases handled without delegated authority.

"This has been the biggest development. Insurers are now coming round to the idea that we can engineer a low cost system with or without delegated authority," says Dicken.

Hugh James has recently been appointed to the legal panels of several insurers.

Unnecessarily complex
Dicken says the firm had found that the traditional claims management process was unnecessarily complex and suffered from inefficiencies.

"During the design stage we set about breaking down all aspects of the claims process into workflow diagrams. This enabled us to spot potential bottlenecks and streamline the process," he adds.

According to the firm, Streamline 21 can then make an early decision on liability and quantum; prepare a detailed case plan at the outset of the claim; and if appropriate make a sensible early offer and, if needed, a Part 36 payment.

But, Dicken adds, the system is not geared towards settlement at all costs, "merely to drive out waste wherever possible".

"If a justifiable defence exists then we make it clear at the outset that no offers will be made and the claim is progressed to trial without delay. In this way we cut the total cost of the claim by removing the opportunity for cost building," he says.

He says there is still an interesting debate to be had with insurers over their predilection to bring more claims handling in-house and the use of in-house lawyers.

"Most would accept that there is a substantial cost involved in keeping an in-house operation and that those costs could be rationalised by using a properly structured outside source," says Dicken.