Claiming What’s Yours: Why Homeowners Insurers Need Claims Litigation Analytics

Series Summary

Insurance executives should be asking a lot of questions right now. They should wonder why their outside law firms haven’t adopted available technology that could eliminate expenses for routine legal work. They should ask their law firms why, despite taking in millions of dollars in legal fees each year, they have not invested a penny in creating predictive analytics tools. They should also ask why they have to start off each and every case as if it was the first of its kind.

In Digitizing Claims Litigation: Providing Insurers with the Power and Control They Deserve, I am going to share what I have learned while developing my insurance litigation management software. To build it, I had to study project management, document automation, knowledge management, predictive analytics, alternative fee arrangements, transparency, and more. While other industries are thriving using these systems, the insurance defense legal industry has lagged behind.

If all of the parties in this industry can come together and apply these solutions to insurance litigation, everyone will benefit. Find out why in Digitizing Claims Litigation: Providing Insurers with the Power and Control They Deserve.
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Little Data: An Overview

Homeowners’ insurance is a risk selection process. Homeowners’ insurers must understand the risks and make the proper selections. They have powerful tools at their fingertips enabling them to choose what risks are worth underwriting. When some of those risks materialize into claims, homeowners insurers have other powerful tools to measure and mitigate those risks.

Then a claim proceeds to litigation, and all of that functionality is lost. Instead of operating within the same powerful platforms that have made homeowners’ insurers successful, they use email and Word documents to exchange powerful and expensive data with their outside law firms. As we all know, emails and Word documents do not have any fields customizable to apply to homeowners’ insurance litigation; therefore, the only way to know what’s in an email is to read it. Without customized fields for homeowners’ insurance litigation, emails and Word documents are where important information goes to die.

Making matters worse, many homeowners insurers spend millions of dollars per year for these emails and Word documents. In other words, not only are the emails and Word documents a poor choice for data analytics purposes, they are also incredibly expensive.

Once the information is lost in emails and Word documents, the chances are slim that anyone will ever be able to find and use that information again.

Even when homeowners’ insurers make efforts to synthesize case data into their systems, they quickly find that their systems are not built to provide litigation analytics. Some homeowners’ insurers will ask their staff to “copy-and-paste” the case data from emails to claims systems. Claims systems are not built to capture many of the pivotal factors in litigation; therefore, homeowners’ insurers may leave some of the most important data behind. Homeowners’ insurers also rely heavily on journal-type systems, however, a journal entry is marginally better than an email when it comes to effectively capturing key information and making it useful.

The Great Data Deficit

In today’s industry, homeowners’ insurers and their attorneys have very limited access to any useful litigation data. Although the stakes are at their peak when a claim proceeds to litigation, the vast majority of homeowners’ insurers rely on “gut feelings” and their adjusters’ and attorneys’ memories when determining how to litigate a claim. When a case arrives on an attorney’s desk, neither he nor the adjuster have one thing to rely on other than their personal opinions. These people making the decisions on how to litigate the claim – the adjusters and attorneys – have little to no data-based tools to automatically produce an estimated settlement amount and duration of the lawsuit.

Claims executives may have global reports that outline the average litigation expense and settlement amounts, however, the homeowners insurance personnel “in the trenches” have no way of using prior case data to determine what a certain attorney settles for and how long it takes to get the case closed. Additionally, other than standard accounting software and Excel spreadsheets, homeowners insurers have no useful, automated tools to determine whether their outside law firms are performing well.

This data deficit has proven very costly. In homeowners’ insurance lawsuits, the plaintiffs’ bar continues to get more powerful, loss payouts are on the rise, and loss adjustment expenses continue to soar. Homeowners’ insurers continue to pay for their outside attorneys’ time instead of value. The plaintiffs’ bar knows that defending a lawsuit will cost a homeowners’ insurer thousands to tens of thousands of dollars. The plaintiffs’ bar knows that oftentimes it will cost the insurer more to defend the claim than it will to resolve it.

Again, homeowners’ insurance litigation is a numbers game, just like underwriting. The only problem is homeowners’ insurers do not have useful access to any of the litigation numbers.

As Peter Drucker said: “What gets measured gets done.” Until homeowners’ insurers commit to using analytics to their advantage, they will continue down the same path – spending without measuring.

Fields of Dreams

The solutions to this data deficit can be as simple as these three steps:

1. Create dropdown fields for the pivotal factors underlying homeowners’ insurance cases.

• Using emails, Word documents, and journal systems, homeowners’ insurers are missing many of the most pivotal fields that, when analyzed, can provide valuable insight into how cases will end. These missing fields must also be dropdown fields, meaning that the users select from a presorted list of options. This helps ensure that an extra space here and a comma there will not render the data useless. In a homeowners’ insurance case, some of these pivotal missing dropdown fields include the plaintiff’s attorney, the public adjuster, the original settlement demand, each counteroffer, the final settlement amount, and the dates of the litigation events that may help provide valuable insight into how to reach the most effective settlement amount.

2. Making the fields easily accessible to all adjusters and attorneys handling a given insurer’s cases.

• Having the right fields capturing data is only the beginning. Homeowners’ insurers must also make these pivotal fields available to every adjuster and attorney handling cases for that insurer. Attorneys have the financial incentive and ethical obligation to communicate everything to their clients. Therefore, they often generate the vast majority of case data. If homeowners’ insurers task their adjusters with relaying the sea of emails from their attorneys into native data fields that only the adjusters have access to, it won’t be too long until the system is nothing but a bunch of empty online fields.

3. Locating the fields within a software tool that automatically runs the data analytics reports.

• Once the data is structured and accessible, the final step is to get as much value out of it as possible. When located within the right software, prior claim and case data can tell homeowners’ insurers what their lawyers think the homeowners insurers outstanding liabilities are, and even what the plaintiffs’ lawyers have to say about that. Not only will the right software enable homeowners’ insurers to see their entire legal portfolio, the right software can also tell homeowners’ insurers when they usually settle a case with each plaintiff’s attorney, how much it typically costs to settle, and who the best defense attorneys are at achieving results.

If homeowners’ insurers take these three steps, they have a much better chance of succeeding in their litigation data initiative. Homeowners’ insurers have the personnel to take their business intelligence to the next level, however, the current pathways for communication do not always allow them to capture ongoing value from their outside attorneys’ hard work. Using these steps, homeowners’ insurers can begin putting their data to work. When homeowners’ insurers start taking care of litigation data the same way they take care of other data, it will not be long before the legal department runs as smoothly and efficiently as the others.

Homeowners’ insurers must treat litigated claims the same way they approach underwriting and non-litigated claims: as data. Doing so will benefit their shareholders, adjusters, attorneys, and policyholders. Paying up to 20 percent of profits per year towards defense cost containment – without measuring it – is the equivalent of issuing a homeowners’ insurance policy without having the property address. Failing to use data analytics in litigation results in expense and loss payout leakage.

With the right actionable data, homeowners’ insurers can use prior case data to determine their existing liabilities and, more importantly, how to reduce them. Homeowners’ insurers can use predictive analytics to predict when a certain attorney might settle a case and for how much. Homeowners’ insurers can also use prior case data to evaluate which outside law firms and attorneys have the best track record for getting the optimal results. When homeowners’ insurers turn their litigated claims into data, they can properly underwrite their litigation risks.