Insurance Defense Law Firms: Strategies and Best Practices

A Start-up System – Is It Time to Change It

By John W. Olmstead, MBA Ph.D CMC

Expanding Into Insurance Defense

As law firms look for additional sources of revenue some have given thought to taking on insurance defense work. In all honesty I have more firms asking how to diversify out of insurance defense into more self-insured and direct representation work. Law firms that want to pursue insurance defense will need to become part of the club and do more than just dabble in this area. They will have to get on the “approved panel lists” of the various insurance companies. Once firms are on these panel lists they will have to entice claims manager to use them as opposed to other law firms that are on their approved lists. In other words they will have to establish relationships with numerous claims managers throughout the company. This is harder than it used to be due to policies that many companies now have prohibiting various forms of networking such as dinners, gifts, ball games, etc. Now days it seems that an educational venue is one of the few formats that are not frowned upon. Law firms may also find that some companies are reluctant to work with very small firms. I have advised by insurance companies that they like to see a certain level of bench strength (backup). The firm does not have to be a large firm but often the insurance company likes to see a minimum of four or five lawyers in a firm. Candidate law firms will have to a have track record of success, understand the business, and be able to accommodate the unique billing (including electronic LEDES billing), case management, and reporting requirements that insurance companies require.

Here are a few ideas for firms to get started:

Become involved in every possible organization that involves insurance claims, ACCA, and other such groups.
Join and become actively involved in these groups.
Offer to give speeches and presentations to these groups.
Develop relationships with news reporters and have an effective public relations program that insures that you get all the PR you can when you have successful outcomes in your cases.
Speak at ACCA and RIMS (Risk Insurance Management Society) conferences.
Form alliances with bigger regional and national insurance defense firms.
Research target companies and make application to get on their approved lists.
Obtain listings in Best and Martindale.
Have a quality website that demonstrates expertise and an e-newsletter that provides information that will help claims managers and adjuster be more successful.

Risks and Strategies

Insurance defense law firms that have been approved as panel counsel for multiple insurance companies can inadvertently find that their revenue base is increasingly dependent on a shrinking number of insurance companies over time.

RISKS

Small number of companies representing the lion’s share of the firm’s revenues

Changing Rules for Insurance Panels – General Industry Consolidation
Regionalization
Insurance Companies putting work “out for bid”
Trapped by a “Paradigm of Pass Success” and failure to institutionalize business development processes and practices
Promoting an “entitlement generation” of partners with no business development skill
Failure to stay abreast of changes within the client’s organization. (Needs, players, policy changes, etc.)
Aging/retirement of founding partners
In house assignments
Departing partners
Lack of time and focus to allocate to new business development

STRATEGIES

Use a structured client feedback process to obtain hard data from your clients on firm performance, client satisfaction, projected case assignments in the future, your firm’s share of the client wallet, changing management (people) and policies, unmet needs, and future opportunities.
If you don’t have one develop a strategic plan and a marketing plan (including a specific budget) for the firm.
Diversify the client base. Target new clients. Aggressively pursue new panel applications, track submissions, and monitor. Once approved – look for opportunities to build relationships. Consider educational forums and venues.
Determine if regionalization is an appropriate strategy for your firm. (Ask your clients)
Look for ways to obtain additional business from existing clients. (Ask your clients)
Write and publish more articles – externally and internally (website).
Beef up website blogs.
Get more attorneys in the firm involved in business development.
Develop a succession plan for the founders.

Recommendations from Claims Managers

Our firm recently completed client satisfaction interviews for several of our insurance defense law firm clients. Here are a few quotes and a summary of what these insurance company law firm clients told us:

We want to work with proactive attorneys that aren’t afraid to try cases.
Limit the number of people working on a file. I like consistent assignments.
I expect attorneys to get back to me by the next business day.
I like one partner and one associate per file.
Most of our billing issues with law firms are due to excessive use of associates time.
I get upset with attorneys that want to settle right before trial.
The primary reason that we terminate our relationship with our outside attorneys is not reporting to us in a timely fashion and poor communications.
I find that many lawyers are poor at managing their files and have poor basic communication skills. I work with lawyers that can do both of these things well.
I think that it is important that law firms provide value added services such as newsletters, legislative updates, e-alerts, seminars, etc on a “no charge” basis. These services are provided by most law firms these days. Such services help us do our jobs better, improves communications and the overall relationship between our organization and the law firm, keeps us up to date on changes in the law, and helps the law firm stay abreast of emerging needs in our business.
I will pay higher fees to lawyers that aren’t afraid to try cases.

I suggest that you start by talking to your clients. Much can be learned by talking to your clients. Structured telephone interviews conducted by a neutral third party can provide many surprises as well as answers. Client satisfaction interviews can be the best marketing investment that you can make.

The End Game

The present state of the insurance defense practice presents numerous challenges to law firms that concentrate on insurance defense. These challenges simply cannot be ignored – they will have to be faced head-on. The solutions are complex and will require time to sort through. While solutions can come in different varieties, they will take the form of one of two general strategic approaches.

Reinvent the Practice – Stay in the Game
Exit or Diversify the Practice

For some firms the appropriate strategy may be to stay in the game. These will be firms that have a well-established reputation in insurance defense, where insurance defense represents a major source of their revenue, and where adequate leverage and profitability and leverage exist. These firms will not be firms that dabble in insurance work. These firms will be committed to this practice area and will focus on it exclusively. Some of the following actions will be required to reinvent the practice and stay in the game:

Get leverage back on track. Tough decisions will be required here. High priced senior associates will have to be let go. Unproductive partners will also have to leave. Paralegals should be hired. Ratios need to get back to 4 to 1.
Partnership admission criteria will become more demanding. Time required to make partner will be lengthened.
Compensation will be based upon performance.
Billable hour quotas will be enforced.
Expenses will be tightly controlled.
Flat fees and other forms of alternative billing will be commonplace.
Unique out-of-the-box solutions will be designed to provide tailored services to meet client needs and differentiate the firm from competitors. The firm will no longer wait for the insurance company to take the lead. The firm will take the lead and provide clients will a menu of service solutions.
Technology will be employed to the fullest extent to reengineer work processes. It will not be used just for technology sake or to keep up with the corporate litigation law firms. When technology is employed old outdated practices and processes will be eliminated.
Standardized practices and procedures will be developed and used throughout the firm wherever possible.
Client focus groups, insurance company councils, and other forums will be formed to open up channels of communications with clients in order to mend the tarnished client relationship and reestablish a business partnership. Innovative insurance defense firms will take active leadership roles in this endeavor.
Aggressive marketing and business development strategies and plans will be implemented in order to maintain appropriate growth rates and profitability. Relationships with unprofitable clients will be terminated. Marketing with be done as a team approach as opposed to being a function done at the individual lawyer level. Both firm and individual personal marketing plans will be commonplace.

Firms that dabble in insurance defense work will exit or diversify their practices.

John W. Olmstead, MBA, PhD, CMC is a Certified Management Consultant and president of Olmstead & Associates, Legal Management Consultants based in St. Louis, Missouri. Olmstead & Associates is a management consulting firm that works with law and other professional service firms ranging in size from 100+ professionals to firms with solo practitioners. The firm founded in 1984 serves clients across the United States and internationally assisting them with implementing change and improving operational and financial performance.

John has over 46 years of experience working with law and other professional service firms. His assignments have ranged from marketing and strategic planning to other legal management engagements such as organizational change, firm governance, succession and exit planning, implementation of technology, financial management, staff development, partner compensation, and practice management. John has helped clients implement client service improvement programs consisting of client satisfaction surveys, program development, and training and coaching programs. His assignments have covered the spectrum of management issues. However, in recent years much of his time has focused on engagements helping firms with:

Succession and Exit Planning
Sale of Law Practices, Mergers & Acquisitions
Partnership Admission
Partner Compensation
Governance
Strategy and Competitive Business Models

John has presented at conferences and workshops for bar and other professional associations at the national, state, and local levels. He has authored numerous articles on law office management in local, regional, and national law office management publications. John is currently serving as Editor-In-Chief, Thomson Reuters Legal Solutions (formally West Group), The Lawyers Competitive Edge: The Journal of Law Office Economics and Management. John also writes a weekly column on best practice tips for the Illinois State Bar Association’s Illinois Lawyer Now Blog. http://iln.isba.org/blog/best-practice-tips.

John has a MBA in marketing and finance as well as a Ph.D. in Business in Organizational Psychology. He is an associate member of the American and Illinois State Bar Associations, a member of the Institute of Management Consultants. John is a past Chair and a current member of the Illinois State Bar Association Standing Committee on Law Office Management and Economics. He is past President and member of the Board of Directors of the Institute of Management Consultants – St. Louis Chapter.

John may be contacted via e-mail at: jolmstead@olmsteadassoc.com.

Additional articles and information is available at the firm’s web site: www.olmsteadassoc.com and blog at

http://blog.olmsteadassoc.com.

Insurance Defense Law Firms: Strategies and Best Practices

By John W. Olmstead, MBA Ph.D CMC

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