As insurance companies come under increasing pressure to reduce the cost of claims handling, Nicky Smith, professional indemnity partner at law firm Weightmans, asks whether more insurers should be pushing their solicitors towards mediation.

The introduction of the Civil Procedure Rules (CPR) was hailed as the dawn of a new era in civil litigation. Openness, co-operation and cost-effective litigation were to be the order of the day. The cornerstone of the new reforms was the use of Alternative Dispute Resolution (ADR).

Indications are that since the introduction of the CPR, mediation as a form of dispute resolution has gained in popularity. However, take-up is still too slow.

Mediation is one of the most effective alternative dispute resolution techniques; it brings real benefit to the insurance industry. However, lawyers are failing to cash in on the benefits by simply failing to consider this technique.

Although mediation is cheap, quick and effective, a recent MORI poll found that a third of companies had not received advice on mediation from their external advisers.

The debate has gathered further momentum as the Centre for Dispute Resolution demands that insurers force their solicitors to use mediation in resolving disputes.

There continues to be a distinct lack of enthusiasm for the process within the legal profession. Lawyers will think of any reason not to mediate – it is too early, it is too late, there are legal issues to be determined, it is too complex, and counsel says it is not appropriate.

None of these reasons can be justified. Every claim can be resolved by mediation, save for in the most exceptional circumstances. The real reason behind the rejection of mediation is ignorance. That should change with the setting up of various pilot schemes throughout the country. However, the legal profession has got to take the plunge now and settle those claims that have been festering in the filing cabinet.

Time and cost savings

Mediation, even post April 26 1999, is still regarded as a last resort measure – something to be considered just before trial, when both parties suddenly realise their "cast iron case" is not quite as unassailable as they had thought when they were instructed three years previously.

When a case settles at mediation in these circumstances, court time and the cost of trial are saved, but what about the costs run up jumping through every procedural hoop without considering the possibility of settlement or compromise? This is the litigation of another century. Times have changed and the legal profession must respond positively.

The insurance industry is a sophisticated buyer of legal services. It has a right to expect not only technical competence from its lawyers, but also an efficient and cost-effective service. Insurance companies are under pressure to reduce the cost of claims handling. This pressure demands a change of culture for both insurers and their lawyers.

Insurers must be prepared to involve their lawyers at a much earlier stage. In return, lawyers must prove to insurers that they deserve to be involved at an earlier stage – that it will result in a real savings. There is no point in lawyers seeing their early involvement as a means to earn more fees. They must prove to their clients that they possess problem-solving skills and commercial awareness – in short, that they can identify at the earliest possible opportunity whether a claim is one to be settled and, if so, adopt an innovative and proactive approach to it. This does not mean that insurers will pay more for a claim than it is worth or that they will settle cases which should be defended.

Why not suggest mediation before proceedings commence? If each party is prepared to be frank about the strengths and weaknesses of its own case, there is no reason why a large proportion of cases could not be settled within a matter of months, as opposed to years, and without the need for litigation.

Even if early mediation does not result in the final settlement of a claim, it will facilitate communication and generate focus on significant issues. Lawyers have been very reluctant to pick up the phone and it costs clients money. If lawyers wish to retain insurance clients, they must start talking – and fast.