The Deposition Service Provider’s Role in Trimming Insurance Industry Expenses | Esquire Deposition Solutions, LLC

As early as 2017, we wrote about the impact that modern deposit management services can have on key barriers to the profitability of insurance companies: unallocated claims settlement costs (ULAE), allocated claims settlement costs (ALAE) and claims paid out to beneficiaries.

Today, as the world is leaving the COVID-19 pandemic behind and entering an era of insecure insurance industry with business and personal losses due to the disease, the need to control costs where possible has been more urgent than ever. The good news is that with data analytics tools now widely used, insurance companies’ litigation costs can be determined to effectively manage and minimize them.

Increased litigation on the horizon

Undoubtedly, the outlook for litigation for the insurance industry is up.

A May 2021 report on federal case filing by data analytics provider Lex Machina identified the insurance industry as one of the few industries to see a surge in litigation due to the COVID-19 pandemic. While case registrations in 2020 fell by a total of 8% compared to 2019, insurance claims increased by 14% over the same period. Lex Machina analysts attributed the surge in insurance disputes to disputes over the extent to which business interruption insurance policies covered losses from COVID-related shutdowns. Nonetheless, erroneous death claims due to COVID-related deaths, which currently do not appear threatening to the insurance industry, represent a further significant source of exposure, as do the countless claims that can result from violations of labor law at the state and federal level.

The insurers also expect an increase in motor vehicle liability claims. The National Highway Traffic Safety Administration recently reported that 2020 road deaths were 7.2% higher than 2019 (PDF), despite a 13.2% decrease in kilometers driven. The bottom line here is that while vehicle mileage and traffic accidents have decreased, the severity of these incidents – and thus the insurance industry’s risk of loss – has increased.

Looking at another broad cost driver in the insurance industry, Investopedia reported that losses due to climate-related natural disasters (e.g. hurricanes, floods, forest fires) amounted to 210 billion US dollars in 2020, an increase of 26.5% compared to 2019 A reversal of this trend seems unlikely in the near future.

Finally, in the United States, the executive branch changed hands in 2020, leading government observers (here, here, and here) to predict an increase in litigation and law enforcement activity across a variety of economic sectors.

For these reasons, insurers can now and in the foreseeable future expect a significant increase in claims exposure.

Deposit provider: services and data combined

Today, many insurance claims executives are using technology to reduce insurance industry litigation costs and help manage case numbers more efficiently.

According to Deloitte’s Insurance Outlook 2021, 61% of insurance companies plan to use cost-cutting strategies to offset the expected increase in costs due to COVID-19. Examples of these strategies include the wider use of remote deposition and electronic exhibit management tools, which directly reduce the cost of litigation by eliminating the cost of travel to the deposition sites.

The Deloitte report also identified changing spending priorities among insurers. On the claims side, insurers in the US and Asia are spending more resources on advanced data analysis, while insurers in Europe are increasing their spending on artificial intelligence technologies.

The integration of data analysis tools and artificial intelligence in process management processes clearly requires access to meaningful data. This data can be difficult to obtain, in particular, data must be collected piece by piece and manually entered into the claims department’s data analysis tool.

In the field of filing services, the first step in using process management technology is to view the filing service provider not only as a provider of services (e.g. testimony in a transcript, scheduling, technology training), but also as a data provider for later analysis .

What types of data can a filing service provider provide? In the case of an insurance company that contracts all of its filing services with a single provider, the claims handler has access to:

• Remote reporter’s report. This information enables companies to make process management decisions based on pre-established criteria (e.g. which litigation should be conducted in person or remotely)
• Settlement of additional costs. Reviewing this information enables companies to understand which law firms are planning various services such as expedited transcripts, videography, interpreting, and the use of remote technicians.
• Method of scheduling reports. This data provides information on how the deposits are planned (e.g. by phone, email or portal)
• Savings report. The total savings made when purchasing filing services from a single, nationwide provider.
• Utilization report. This report enables claims managers to understand which law firms in each jurisdiction are handling the most filings and how much is being spent on filing service. Historical data can also be useful for planning purposes.

In addition, the deposition reporting provides data on which law firms comply with the client’s request to use their preferred providers. Deviations from approved supplier lists can lead to the claims expenses being unnecessarily increased.

Cut case-specific expenses

For example, consider deposit services. Court reporting expenses often make up a significant portion of total litigation expenses and are second only to legal fees. These expenses are typically reported as Allocated Claims Adjustment Costs (ALAE), a category that describes the expenses associated with a particular claim. ALAE is one of the largest expenses that an insurer must set aside funds to cover.

A small local filing service provider usually delivers a transcript in the desired format within the agreed timeframe … and no more. The transcript itself describes the filing well enough, but it’s not particularly useful for managing expenses in this particular case, and it is of no help at all for claims managers who want insight into their larger operations – be it a whole class of claims , a breakdown of any litigation in a particular jurisdiction, or an assessment of the performance of outside law firms.

An insurance company managing litigation over a relationship with a single national filing service provider has a very different foundation. The insurer can immediately see clearly the main sources of deposit-related expenses per case or per company. How many lawyers conduct how many interrogations? Which deposits are accelerated and which are not? Which law firms and lawyers use remote billing and which do not? Which law firms are advancing their litigation and which are just catching up? Paying close attention to these and other considerations can enable claims managers to have a significant impact on ALAE.

Efficiency lowers unallocated expense

Depository service providers are also able to control Unallocated Loss Compensation Costs (ULAE). ULAE costs are comparable to general overhead costs and describe costs of the insurance company that cannot be assigned to a specific damage. Funds spent on claims adjusters salaries, office rentals, and technology purchases are usually categorized as ULAE. The extent to which a filing service provider can make an insurance company more efficient will affect the ULAE. For example, having all of the transcript logs – and video clips – in a single searchable repository will reduce the friction of accessing information and give claims managers and in-house attorneys a 10,000-foot view of business operations.

In addition, process managers with remote deposition management and other technologies for deposit management can meaningfully participate in withdrawals and themselves assess the credibility of experts and witnesses who will testify for or against them.

Winning strategies lower loss costs

Finally, there is “loss cost,” a category of cost that describes the amount of money that the insurance company must pay claimants, either through settlement or judgment. It is the trend for insurance companies to keep claims costs low. This is where smart judgment and legal acumen are used to ensure that the payouts match the coverage outlined in the insurance policies – and nothing more. By applying process-specific search and analysis technologies to electronic data in the form of evidence and testimony, today’s claims managers can find evidence or gain insight that will turn cases in their favor, be it an overlooked piece of evidence or an inconsistency in testimony during a long-running, complex case given.

Insurance companies considering using data analytics and artificial intelligence in their operations should carefully examine the data they receive or could receive from their depository service providers. You could simply find a number of overlooked tools useful in reducing ULAE, ALAE, and loss costs – and keeping the business profitable in these uncertain and contentious times.