Claims Litigation Metrics Part 2: Total and Average Legal Spend

This the second post in a series about the critical reports and metrics that claims departments can use to improve how they operate. The first post focused on metrics maturity and defining the various types of reports. Now we will start to look at specific metrics and how you can use them to improve your claims litigation management program. We will begin with Total and Average Legal Spend.

The Power of Spend Data

Measuring legal spend on claims litigation is crucial because it represents the most basic information needed to help the department’s management team control external legal costs and shore up indemnity. To understand the value you are getting out of your claims litigation program, you must first make sure you know how much you are spending on legal services.

To be most effective, legal spend data should be segmented according to the categories that will be most helpful to you in making decisions about your legal spend. These will vary somewhat among companies, but typical examples include lines of business, matter type, and severity. When deciding on how to segment your own spend data, look to stay well informed about where your costs are trending so that any inefficiencies can be quickly identified and remedied.

Reports on Spend

As we covered in more detail in our previous blog entry, different types of reports are used in order to pinpoint how claims departments can improve. With respect to legal spend, outcome reports provide updated information about cost; exception reports provide early warnings regarding potential risks for overspending and note responsible parties; and performance reports show who is and is not meeting performance expectations.

One metric, such as total and average legal spend, consists of several reports. For example:

  • Total Legal Spend by Claim Category can be run as an outcome or performance report. The outcome report provides information on the spend itself; for example, spend by month for each major claim category. The performance report might show the same information, but present it with superimposed spend targets.

Sample outcome chart

  • An exception report on Litigated Auto Claims with Low Budget Reserves could allow you to identify matters at risk of exceeding their budgets and should also identify the person responsible for each claim. This report presents the data you need to prioritize matters and take the necessary action to minimize budget overages.

Putting the Results in Context

High-level organizational decisions about underwriting tend to have an impact on legal spend that may not show up in the data for a couple of years. When you evaluate your spend on the granular level of individual claims and month-to-month trends, don’t forget to consider the larger context of the company’s risk assumption.

Understanding the larger and more immediate drivers is key to the decisions you will make based on your spend data. For example, a large increase in total or average spend without an obvious explanation – such as an event that generates significant catastrophe claims – should trigger deeper analytics that can identify the cause. Only then will you know what changes will rein in your spend.

There are many ways to control legal spend. You can employ strategies to close cases sooner, limit the number of firms used, set a strict schedule for rate increases, or take any number of other actions. Understanding your legal spend allows you to make informed decisions about which options will be effective.

 

Download our Seven Core Metrics for Claims Litigation white paper for detailed information on the Total and Average Legal Spend metric, along with the other key metrics that can help you improve your claims litigation management program.


About The Author

Bill Sowinski

Bill Sowinski directs all decision support services at ELM Solutions. In this role, Bill leads an expert team in the design of client legal spend analyses and benchmarking disciplines based on each organization’s specific needs. He works with clients to structure and analyze their legal data, helping to develop and deploy measured strategies that improve legal and claims department performance. A litigation expert and a pioneer in the legal analytics space, Bill has extensive experience working with key clients across myriad industries.