Back in 2017, we wrote about the impact that modern deposition management services can have on the leading impediments to insurance company profitability: unallocated loss adjustment expenses (ULAE), allocated loss adjustment expenses (ALAE), and losses paid out to claimants.
Today, as the world emerges from the COVID-19 pandemic and into an era of uncertain insurance industry exposure to business and personal losses stemming from the disease, the need to control costs wherever possible has never been more urgent. The good news is that, with data analysis tools that are now widely available, litigation costs can be effectively managed and minimized by insurance companies with the determination to do so.
Increased Litigation on the Horizon
Without a doubt, the litigation outlook for the insurance industry is trending upward.
A May 2021 report on federal case filings from data analytics provider Lex Machina identified the insurance industry as one of the few sectors that experienced an increase in litigation due to the COVID-19 pandemic. While case filings in 2020 were down 8% overall compared to 2019, insurance claims increased 14% over the same period. Lex Machina analysts attributed the increase in insurance litigation to disputes over the extent to which business interruption policies covered losses arising from COVID-related shutdowns. Wrongful death claims due to COVID-related fatalities, which do not currently appear threatening to the insurance industry, are nevertheless another substantial source of exposure, as are the myriad claims that may arise from workplace law violations at state and federal levels.
Insurers are also bracing for an increase in auto casualty claims. The National Highway Traffic Safety Administration reported recently that motor vehicle fatalities in 2020 were 7.2% higher than in 2019 (PDF), despite a 13.2% decrease in miles driven. The bottom line here is this: Although vehicle miles and traffic incidents are down, the severity of those incidents — and hence insurance industry exposure to losses — is up.
Looking to another broad driver of insurance industry costs, Investopedia reported that losses due to climate-driven natural disasters (e.g., hurricanes, floods, forest fires) totaled $210 billion in 2020, up 26.5% from 2019. A reversal of this trend seems unlikely in the near term.
Finally, in the United States, the Executive Branch changed hands in 2020, prompting government policy observers (here, here, and here) to predict an increase in litigation and law enforcement activity across a wide range of commercial sectors.
For these reasons, insurers can expect a significant increase in claims exposure now and into the foreseeable future.
Deposition Providers: Services and Data Combined
Today, many insurance claims executives are leveraging technology to lower insurance industry litigation costs and assist in managing caseloads more efficiently.
According to Deloitte’s 2021 Insurance Outlook, 61% of insurance companies plan to use cost-cutting strategies to offset expected increased costs due to COVID-19. Examples of these strategies include the wider use of remote deposition and electronic exhibit management tools, which directly lower the costs of litigation by eliminating the expense of travel to deposition sites.
The Deloitte report also identified shifting spending priorities among insurers. On the claims side, insurers in the United States and Asia are directing more resources to advanced data analytics, while insurers in Europe are increasing expenditures for artificial intelligence technologies.
Clearly, the integration of data analytics tools and artificial intelligence into litigation management processes requires access to meaningful data. That data can be hard to come by, especially data must be collected piecemeal and entered manually into the claims department’s data analytics tool.
In the area of deposition services, the first step in turning litigation management technology to a party’s advantage is to consider the deposition services provider as not just a provider of services (e.g, capturing testimony in a transcript, scheduling, technology training) but also as a provider of data for later analysis.
What sorts of data can a deposition services provider deliver? In the case of an insurance company that contracts for all of its deposition services with a single provider, the claims executive has access to:
- Remote Reporter Report. This information allows companies to make litigation management decisions based on pre-determined criteria (e.g., which litigation events should be conducted in-person versus remotely)
- Additional Expense Report. Review of this information allows companies to understand which law firms are scheduling various services like expedited transcripts, videography, interpreting, use of remote technicians.
- Method of Scheduling Report. This data reveals how depositions are being scheduled (e.g., via telephone, email or portal)
- Savings Report. The total savings achieved when purchasing deposition services from a single, nationwide provider.
- Utilization Report. This report allows claims executives to understand which law firms conduct the most depositions, in each jurisdiction, and amount spent on deposition service. Historical data can be useful for planning purposes as well.
Additionally, deposition reporting yields data on which law firms are complying with the client’s request to utilize their preferred vendors. Deviation from approved vendor lists can have the effect of driving up claim expenses unnecessarily.
Trim Case-Specific Expenses
Consider, for example, deposition services. Court reporting expenditures are often a significant portion of the overall litigation spend, coming in second behind legal fees. These expenditures are typically reported as allocated loss adjustment expenses (ALAE), a category that describes expenses allocated to a particular claim. ALAE is one of the largest expenses for which an insurer must set aside funds to cover.
A small local deposition services provider typically delivers a transcript in the desired format within the agreed-upon time frame … and nothing more. The transcript itself describes the deposition well enough, but it’s not terribly useful for managing expenditures on that particular case, and it’s no help at all to claims executives who want insights into their larger operations — whether it’s an entire class of claims, a breakdown of all litigation in a particular jurisdiction, or an assessment of the performance of outside law firms.
An insurance company that manages litigation through a relationship with a single national deposition services provider stands on an entirely different footing. Immediately, the insurer can clearly see the main sources of deposition-related spending on a per-case or per-firm basis. How many attorneys are conducting how many depositions? Which depositions are expedited, and which are not? Which firms and attorneys are using remote depositions and which ones are not? Which law firms are driving their litigation engagements and which are merely playing catch-up? Close attention to these and other considerations can put claims executives in a position to have a meaningful impact on ALAE.
Efficiency Lowers Unallocated Expenses
Deposition services providers are also in a position to help control unallocated loss adjustment expenses (ULAE). ULAE costs are akin to general overhead, describing insurance company costs that are not attributable to a specific claim. Funds spent on claims adjuster salaries, office rents, and technology acquisitions are typically categorized as ULAE. The extent to which a deposition services provider can bring efficiencies to an insurance company’s operations will impact ULAE. For example, having all deposition transcripts — and video clips — in a single searchable repository will reduce friction in accessing information and provide claims executives and in-house counsel with a 10,000-foot view of company operations.
Additionally, with remote depositions and other deposition management technologies, litigation managers can participate meaningfully during depositions and judge for themselves the credibility of expert and fact witnesses who will be testifying for, or against, them.
Winning Strategies Cut Loss Costs
Finally, there’s “loss cost,” an expense category that describes the amount of money the insurance company must pay out to claimants, either by settlement or verdict. For insurance companies, keeping loss costs low is the name of the game. It’s where shrewd judgment and legal acumen are deployed to make sure payouts align with coverages described in the insurance policies — and no more. By applying litigation-specific search and analysis technology to electronic data in the form of exhibits and deposition testimony, today’s claims executives can find evidence or draw insights that will turn cases in their favor, whether it’s an overlooked piece of evidence or an inconsistency in testimony given during a long-running, complex case.
Insurance companies that are considering deploying data analytics and artificial intelligence into their operations should take a hard look at the data they are receiving, or could receive, from their deposition services providers. They might just find any number of overlooked tools useful for chipping away at ULAE, ALAE, and loss costs —and preserving company profitability in these uncertain and litigious times.