250 Risk Professionals Provide Their Take on Managing Legal Service Quality and Spend

As legal and regulatory trends continue to impact business, risk professionals need to invest in the right tools and software to mitigate costs.

By: Autumn Demberger | April 7, 2020

2020 is well underway, and risk managers are actively keeping a pulse on the top legal and regulatory trends that could impact their daily operations. Everything from an increase in nuclear jury verdicts to ensuring they’re compliant with updated laws has risk professionals alert to the varying legal needs of their companies.

In a survey conducted by Risk & Insurance® and sponsored by Quovant, industry professionals from across the U.S. detailed what they believe are some of the most critical legal and regulatory trends to watch — and through these findings, it becomes evident that companies need the right tools and metrics for adequate spend and performance tracking to adapt to today’s legal landscape.

The most frequently reported concerns thought to drive legal spend in the coming years include:

1) Cybersecurity and Data Privacy

Nearly 37% of respondents say the increase in cybersecurity and data privacy regulation requirements are most concerning, placing this trend at the top of the list.

GDPR, which went into effect in 2018, set the stage for today’s standards in data protection regulation. While the California Consumer Protection Act is slated to go into effect this July, several other U.S. states have followed suit and are in the process of drafting bills to further cybersecurity and data protection efforts.

2) General Compliance

Coming in a close second is general compliance with legal and regulatory changes, with 35.5% of respondents naming this as a top concern.

3) Increase in High-Stake/High-Cost Matters

The increase in complex, contentious and high-stake cases is the third most concerning trend for respondents overall.

This is an especially critical area to emphasize having the right tools in place. Costs can be better managed through spend tracking and analysis and effective monitoring of adherence to billing guidelines, but if companies don’t deploy the right methods and processes to capture this data, it becomes difficult to achieve.

With the right data, upward trends in legal spend can be identified by pinpointing which cases, claims or jurisdictions are costliest, thus allowing companies to better prepare themselves and minimize costs.

4) Jury Verdicts

Large and continually increasing jury verdicts came in fourth overall, with 14% of respondents saying this trend is most concerning.

Numbers like the $8 billion verdict against Johnson & Johnson’s role in the opioid epidemic or the $2 billion verdict against Bayer/Monsanto’s weed killer have risk managers reviewing their risk assessments as jury awards continue on this path of unpredictability.

Also known as megaverdicts, this trend has increasingly changed the way general counsel approaches litigation.

5) Additional Concerns

Additional concerns named in the survey include increases in M&A activity, analyzing and tracking diversity and inclusion requirements with vendors, and investment in new technology.

“The factors contributing to today’s rising legal spend and complexity should be looked at holistically, but it’s important to understand the details,” said Michael Sheridan, president, Quovant.

“Pinpointing areas of over-expenditure is key to managing costs and making better, data-driven decisions moving forward. Operating blindly is never efficient.”

Michael Sheridan, president, Quovant

With these legal and regulatory trends on the horizon, companies are increasingly investing in and working with outside legal counsel — and while legal counsel plays a vital role in managing risk, companies should still evaluate how they’re handling their legal spend and the results they’re obtaining.

Seventy-two percent of the survey respondents’ organizations consult with outside legal counsel, but only 68% said they’re actively monitoring their associated spend.

As such, the survey also aimed to gain a deeper understanding of respondents’ approaches to managing the quality and expenses of their legal counsel.

To gauge this, we need to look beyond projected trends and evaluate the specific processes and matters driving legal expenses for today’s businesses:

Claim Severity: For those actively watching their expenditures, claim severity is leading their legal spend, as nearly 41% of respondents listed this as their organization’s top driver of costs.

Compliance: Twenty-one percent of respondents said monitoring and keeping up with regulatory and compliance requirements drive the majority of their companies’ legal spend.

Claim Volume, Staffing and Administrative Work: Compliance is followed by the volume of claims, increased use of outside counsel and increased use of in-house legal staffing.

“With a legal spend management partner working hand-in-hand to analyze legal spend related to litigated claims, ensure billing guidelines are being followed and provide valuable analytics on performance and spend, legal and risk management departments can better focus on their primary responsibilities,” said Sheridan.

It’s one thing to monitor costs, but it’s another to focus on the quality and effectiveness of the outside counsel services being paid for. This gap potentially costs companies a surplus of legal spend that’s failing to be maximized — and this lack of oversight is leaving them in the dark.

Risk professionals agree, with two-thirds of respondents saying monitoring legal counsels’ quality and performance is a top priority while the remaining 34% said cost is a more pressing matter. However, for those who do emphasize monitoring performance, only 32% have specific performance metrics and key performance indicators in place to do so.

Furthermore, 22% of respondents said their organization utilizes the services of a claims adjuster and/or another third-party to monitor quality and performance, but 29% admit they lack the specific performance metrics and key performance indicators for it.

The remaining 17% of respondents said they’re unsure of their company’s approach to monitoring outside counsel quality and performance.

“Legal spend should always be carefully reviewed, but law firm performance is a key component of this relationship,” continued Sheridan.

“The right legal spend management provider monitors every aspect of a company’s outside counsel, including identifying and benchmarking top performers.”

Finding a Partner to Help Evaluate Legal Counsel Needs

The main takeaway from the survey is that companies and risk management professionals are aware of the trends slated to impact their operations, the legal processes that are eating away at their budgets, and that they recognize the need to monitor outside counsel spend and performance — but are they adopting the right approach?

Consulting outside counsel for corporate legal matters is an ever-present component of a company’s budget, but that doesn’t mean it can’t be maximized.

From here, companies must prioritize solutions that act on these takeaways.

This is often difficult and time-consuming to do in-house, so companies are turning to legal spend management providers that have the specialized expertise and technology to uncover cost savings and meaningful patterns in performance.

These partners allow corporate legal departments to stay lean and focus on their most valuable work while giving their companies more control and predictability when managing their spend. &

Autumn Demberger is a freelance writer and can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.