Is the Insurance Industry at an Inflection Point?

New stresses are cropping up in the relationships between claim organizations and their defense firm partners while the plaintiffs’ bar adopts new technologies that challenge defense teams’ abilities, according to research presented by Taylor Smith, president, Suite 200 Solutions, in CLM’s recent CCO Discussions webinar. Entitled “Insurance Defense Litigation—Is our Industry at an Inflection Point?” the webinar explores findings from the 2024 CLM Defense Counsel study—a 91-question survey of 375 participants consisting of 58% partners and equity shareholders; 26% associates; and 15% managing partners and executive committee members. 

Five Areas of Confluence

“The five areas of confluence that we settled on when we looked at the results were these: talent shortage; client relationships; core pain points; career satisfaction; and future challenges,” states Smith. “We are in a unique industry in the sense that claim organizations and insurance defense firms [must] both be functioning at 100% for us to win.”

Staffing and Talent

“In terms of staffing and workload, a little bit under half reported higher caseloads,” says Smith. “More than half reported that their firms are experiencing more turnover. But the number that really caught my eye…was that…65% of the respondents said that their law firms are not fully staffed.” This relates to recruiting and retaining attorneys, about which nine out of 10 responded it was more difficult, two-thirds of whom said it was “much, much more difficult,” according to Smith. “I think this is becoming…discussed more openly now because…you’re seeing firms turn down assignments, which, if you’re in the business of being an insurance defense attorney where regency is everything, turning down an assignment because you don’t have the staff for it is a really big decision.”

Client Relationships

 Survey participants were asked whether they believed the strength of their relationships with clients were stronger, weaker, or the same. “You’ll see the numbers in 2020 from the defense counsel study where 61% said stronger; that number has now dropped to 52%,” notes Smith. “The second highlight I’ll point out is that…this study was one of the few where defense attorneys were less bullish than their claim executive counterparts. More consistently over the years, I see defense attorneys speaking in glowing terms about relationships when the claims executives as a group are not quite so bullish on the topic. But this is a case where defense counsel gave a lower number of 52% than litigation executives had the prior year [in the 2023 study] at 54%.” In the “weaker” column, there was a slight diminishment from 18% to 15% among defense counsel.

The next question pertained to how well firms are doing at understanding client needs, and the number dropped from 68% in 2020 to 52% in 2024, according to the report. “Interestingly,” says Smith, “that corresponds to some degree with what the claim executives said in 2019 and 2023; they went from 2% to 8% in terms of doing worse, and so those two things seem consistent with one another.” Smith then posed the question of whether it is simply more challenging to understand client needs, or whether it is more challenging to convey those needs to the law firms that professionals are working with.

The survey also asked whether firms think they are doing better, worse, or about the same when it comes to creating value for their clients. “Defense attorneys went from almost 80% down to 60%...in terms of doing better,” explains Smith. “That number similarly declined across litigation executives as well—or CCOs—from 48% to 30%...and in terms of doing worse, defense counsel went from 1% to 5%. For any law firm to say they’re doing worse than anything is usually a great admission for them.”

Core Pain Points

The survey asked litigation executives and defense counsel, “post-appeal, what do you think your invoice adjustment rates are?” In 2023, litigation executives reported that they took a 5% reduction on the invoices they received. Meanwhile, the average response for defense counsel in the 2024 study was 9.5%. “Now, clearly, one of these numbers may be wrong, right?” asks Smith. “It’s hard to reconcile these two numbers. I think what’s more relevant, to me, is the perception that if you ask the average attorney leadership persona within our insurance defense law firm, they think they’re giving up 9.5%, [but] they may only be giving up 5%.” The answers indicate that invoice adjustments have become more painful for law firms.

Furthermore, 76% of defense counsel responded that invoice adjustments feel subjective and/or inconsistent in 2020 and 78% responded the same in 2024. Remarkably, only 8% responded that invoice adjustments feel objective and clear in 2024, compared to 18% in 2020.

When it comes to submitting invoices, the survey asked respondents to rank the process on a pain index of zero to 100, with 100 being the most painful thing they have experienced. Since the 2020 study, the number has gone up from 50 out of 100, to 84 out of 100 for non-associates, indicating significantly more pain. In terms of the index on waiting for payment, there was also an increase in pain, although not as drastic. Non-associates ranked the pain as a 70 out of 100, up from 56 out of 100 in 2020.

Career Satisfaction

The overall response was that 63 out of 100 respondents are satisfied with their careers, according to the survey. Participants were also asked whether they would recommend a career in insurance defense to a law school graduate, to which 53% of respondents said they would. These numbers, according to Smith, are lukewarm at best.

Future Challenges

The survey asked defense counsel whether they believe “litigation management expertise is greater or less or the same in the claim organizations they work with,” explains Smith. “The number who feel it’s less went from 27% to 36%. That’s more than one third now [who] think they have less experienced counterparts to work with, [while] the percentage that believe it’s greater went from 29% to 16%.”

The survey also asked who “the primary driver of case strategy is on most of their files: the lawyer, the claims professional, or both working in a beautifully symbiotic and harmonious process,” notes Smith. “At the end of the day, two-thirds (66%) of the attorneys say that they drive the strategy, and the claim professional authorizes it, [while] 30% say it’s harmonious [and] 4% say that the claim professional is driving the strategy.”

The top challenges in the next five years, according to respondents, were low rates at the top, followed by hiring and retention of new attorneys, and more aggressive bill adjustments and audit. Technology advancements, such as AI, “ranked as a 1.7. Compare that to the 2.3 [(low rates)] in this weighted ranking, and it’s pretty far down on the list,” explains Smith. “As I’ll try to make the case…I have a significant concern. It’s a very personal concern that our focus on rate and billing and invoice adjustment attracts us all as a community from the much broader threats facing us, which, in fact, in my view, are…ranked number four here, but…should be ranked as number one.”

Plaintiff Bar Weaponry: Adoption of AI and Data Sharing

I think litigation funders are playing such a significant role right now,” Smith says. “In my view, the battle—the game [mentioned earlier]—is about litigation weaponry, and that weaponry will ultimately reveal itself to be data—the data specifically that is being used to understand the litigation environment.” In order to win the battle, however, both players on the insurance industry team must be in sync.

EvenUp

Smith discusses Evenuplaw.com, an organization that raised $220 million in 18 months. “I and other colleagues had predicted that we would see them hit unicorn status in 2025. They beat that estimate handily,” he explains. “They hit a $1 billion valuation as a privately held company, giving them that unicorn status in October of 2024. If you go to their website…they claim a 30% increase in settlement values, they claim an almost 70% increase in policy limit settlements—not demands—settlements. They now claim thousands of plaintiff firms as clients.”

One of the primary features EvenUp offers, according to Smith, is a contributory database, with all the plaintiffs’ law firms contributing data that helps to better understand litigation environments. Its primary offering “is to create settlement demands and to do it in the voice of Ernest Hemmingway or a Summa Cum Lauda Harvard graduate, or however else you want to use the GenAI to create a settlement package that is effective, robust, and impactful,” Smith explains.

“The challenge, the interesting thing about this, is that no carrier would ever know that the settlement demand they’re receiving was prepared by EvenUp. There’s no branding on it. They give it back to the personal injury attorney, [who] then presents it to the defense. And that’s what makes this insidious in so many ways, because the last numbers that I could find were that they were producing 5,000 documents or demands a month, which means, potentially, that a significant percentage of the demands your claims people are seeing may have been prepared by EvenUp.”

In the context of litigation management, two more examples of companies being used by the plaintiff bar are Quanlex and Legalist, both of which have vast sums under management, have litigation finance arms, and are using AI tools.

Verdict Sizes Post-COVID-19: New Research

“There have been 1,288 Nuclear Verdicts—that is, verdicts over $10 million—that [researchers] were able to find in the last 10 years,” according to Smith, who referenced the Institute for Legal Reform (ILR) May 2024 update on trends, causes, and solutions. “It is less than 2% of all trial starts in the timeframe in which they were looking at [(2013-2022)]. In that 10-year period, we estimate that there were 76,000…tort trial starts in the types of things that we’re interested in,” says Smith. “Those 1,288 Nuclear Verdicts comprise less than 3% of all verdicts, and that’s a big number still. It’s 2.77% of the roughly 50,000 verdicts that were rendered in that timeframe in the lines of business that interests us.”

Smith also referenced a study performed by Sigma Sight AI, a company that provides negotiation tools for insurance defense teams, which examined 11,000 verdicts spanning three periods of time: pre-COVID-19 (2015-2019), COVID (2020-2021), and post-COVID-19 (2022-2023).

Smith detailed three findings: excluding punitive damages, verdict sizes increased 28% during COVID, and 179% pre-COVID to post-COVID. With outliers removed, it increased 18% and 107%, respectively. With punitive damages included, however, verdict sizes increased 12% and 274%. “One thing that we noticed in the verdicts—and this is important in understanding the data set—is that the [number] of specials in the verdicts were vastly larger in the post-COVID period and the COVID period than the pre-COVID period,” explains Smith. “Part of that is data selection in terms of numbers, but part of it, our hypothesis is, is that big specials cases got pushed from COVID to post-COVID, so they could get it in front of a jury more effectively.”

Non-Economic Damages

“Average non-economic performance increased by 37% during COVID and by 40% pre- to post-COVID,” states Smith. “To me, non-economic damages performance is probably the most important unknown in the management of litigated files because both the defense and the plaintiff…know what the specials are going into a trial. What we don’t know, is how can the jury be excited to award non-economic damages in ways that really present a problem for the defense? And these are the numbers that speak to that.”

Significantly, Smith notes that “if you look at Texas, we believe Texas is responsible for almost half of this increase during COVID (211%) and an overall increase of 165% from the pre- to the post-COVID periods…if you take Texas out, non-economic damages, performance damages, were flat during COVID and have increased by 21% pre- to post-COVID.”

The most important finding, according to Smith, is that granularity matters—specifically, the venue and the attorney matters. “The reason I highlight granularity is to say that New York is more problematic is more problematic than it was before is not exactly the whole story. Of the three largest counties in New York, one is neutral compared to the pre-pandemic era; one has gone up; and one has gone way down,” he explains. Meanwhile, in Texas, “for two of the largest counties, one went way down, and one went way up. It matters where you are and where your case is.”

Is the Industry at an Inflection Point?

“I don’t really have an answer to whether or not we’re at an inflection point, but I think it’s the evaluation of that [question] that’s more interesting than the answer itself,” says Smith. In terms of action that should be taken by CCOs, he suggests that they participate heavily in initiatives such as CLM’s Litigation Management Task Force to “help shape the relationship between the two players on our team in constructive ways, and help to address some of the friction points…in a way that allows us to focus on really what I think the greater threat is, and that’s the plaintiff’s bar’s intense focus on technology.” Furthermore, he advises CCOs to learn as much as they can about the effort and money that is flowing into the plaintiff bar’s side. Lastly, he suggests adapting at a litigation management case-centric level, “which is to say use tools to gain understanding of litigation environments. We’re not trying enough cases in my view. But more importantly, it’s not about the aggregate numbers of trials, it’s about not knowing which venues we should try in, perhaps, rather than those we should avoid like the plague.”