LexisNexis: P/C Carriers Increase Use of Alternative Fee Arrangements

June 1, 2016

Nearly 80 percent of property/casualty insurance carrier legal and claim departments use alternative fee arrangements (AFAs), according to a recent LexisNexis CounselLink survey. This is an increase from 69 percent reported in August 2015.

According to the report, the use of AFAs is increasing rapidly along with flat fees and blended rates.

The online survey of 135 claims and/or legal departments was conducted between January 29 and February 15, 2016. The majority of respondents annual spend on outside counsel ranged from $10 – $500 million.

While a substantial increase in use of AFAs was noted, the survey found that more than half of respondents reported that outside counsel spend under an AFA was 20 percent or less.

While some resistance to AFAs was noted, most respondents expected to continue using them or increase their use in the coming year. Benefits, according to respondents, are that AFAs allow for better prediction of expenses and risk management, lower costs and help with determining outside counsel effectiveness.

The main challenges facing property/casualty claims and law departments in 2016, according to respondents, were grouped into four main categories:

  1. Litigation cost control/reducing costs.
  2. Risk management.
  3. Vendor management.
  4. Measuring effectiveness.

A variety of AFAs are in use today. The most popular among P/C carriers include: flat fee, blended rate, fixed fees, multi-stage, capped fee, flat fee by portfolio type, performance bonus and holdback. More than half of survey respondents use flat fee, fixed fee or blended rate AFAs. A third use multi-stage, capped fees or flat fee by portfolio type AFAs.

Respondents felt that all were effective or very effective, expect for the holdback AFA.

Complex cases, poor defense fears and making sure AFA terms are fair for all parties are some impediments to using the agreements more, according to those surveyed.

The report can be viewed at http://counsellink.lexisnexis.com/LP=878

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