“Scope for more flat-fee arrangements” with lawyers handling claims: procurement manager

Although 95-98% of insurers’ legal bills for handling claims files still follow a billable-hours fee structure, “there is scope for more flat-fee arrangements,” Lori Brazier, claims procurement manager for Aviva Canada, told a seminar at the CIP Society Symposium 2010 in Toronto.
But to establish a fair flat fee, an insurer would need to collect data from a detailed breakdown of legal costs. And right now at least, insurance companies and law firms do not have the IT systems required to support that type of data collection.
Insurers, financial institutions and pharmaceutical companies in the United States tried to develop a task-based code for analyzing legal fees about 15 years ago.
“They use lawyers a lot and pay a lot of money in the defence of litigation matters,” Brazier said. “The idea was to know what different categories of files should cost, do some benchmarking and see what the averages were.
“It never really went anywhere, because nobody had the systems to do the analysis, to collect the data properly and analyze it.”
Brazier knows of one situation in which a Canadian insurer retains a single law firm, BLG [Borden Ladner Gervais LLP]. BLG has a system for generating data that lets its insurer client know how many hours they are billing for certain files.
The insurer then uses this data in the preparation of its company growth plans. The insurer pays BLG a monthly fee, which is adjusted as needed, Brazier said.
“That’s pretty innovative,” she said. “I’m not aware of any other insurers doing that.”
Brazier said an insurer could try and create a system of its own to generate the data, based on an analysis of invoices for legal fees, but it would be onerous.
“We had some projects where we actually had folks sitting down in a room with boxes of files and creating the database, by entering data,” she said. “And then you can start to see a picture. You can start to see how a file is being staffed, and see whether you really have the right mix of [lawyers working on a file], or is it too senior? It’s useful to get that data.”
The complexity of producing detailed data sets has impeded many insurers from moving to a flat fee structure, Brazier suggested. And so “the hourly rate, the death of which has been predicted for 20 years, is still alive and well.”