Adding value - Recently launched a programme

LEGAL and other professional fees in connection with claims represent one of the most significant outgoings for mutual clubs. This is only to be expected, as exceptional levels of claims service and advice to members are key factors by which the mutuals differ from commercial market underwriters. The managers of the clubs, however, are responsible, on behalf of the members, to maximise the value obtained from the money the clubs spend on acquiring outside expertise.

Thomas Miller has recently launched a programme aimed at improving that value. It is designed to deliver better services to the members by working in a more efficient, skilful and effective way with outside advisers and suppliers. This does not mean simply reducing the amount that is spent. However, an important by-product of the pursuit of value for money should be the substantial and sustained reduction in overall costs.

The programme is being developed with the active participation of a number of London's leading maritime law firms who handle the majority of the cases paid for by the clubs. These include Richards Butler, Ince & Co, Clifford Chance, Eversheds, Norton Rose, Clyde & Co, Stephenson Harwood, Sinclair Roche & Temperley, Watson Farley & Williams, Hill Taylor Dickinson and Holman Fenwick & Willan.

This co-operation suggests that the law firms themselves realise that new arrangements must now be made and the time is ripe for a fresh look at what lawyers can do for the clubs and their members, how they can identify and focus more accurately on the results that those clients actually seek, and how they can be remunerated in more appropriate ways. There is concern that the quantum of London's maritime legal work appears to be shrinking as a result of improved communications, the development of expertise in other centres and a tendency for some clubs to keep in-house more small claims work, such as routine cargo claims and demurrage disputes.

London and New York may still have a disproportionate share of the world's big casualty work, but the number of such casualties seems, happily, be in decline, partly perhaps because of the success of regulatory initiatives such as the ISM Code in producing improvements in ship-operating standards. There is also a perception that shipping no longer produces, for lawyers, rewards comparable with those generated by other areas of legal work. This in turn raises concerns that the best young legal talent will cease to be attracted to maritime law.

This is much more serious than a grumble about shipping solicitors' hourly rates. Although measurement of time used is likely to continue to contribute to the way in which fees are calculated in the future, it is hoped that one outcome of the Millers programme will be a significant shift away from rewarding the use of time, itself of no benefit to the client, towards rewarding the efficient achievement of results.

The programme must also be aimed at improving the club's claims management performance just as much as at the performance of outside lawyers, surveyors and club correspondents. The claims manager is pivotal to the claims handling process and needs to develop project management skills. He or she must also understand the needs of the member and the club so as to be able to give a clear steer to the lawyers and other service suppliers as well as ensuring that they focus on those areas of a case where they really can add value.

The programme is built on six guiding principles:

• Further expand the loss prevention advice that the clubs already give to their members in order to reduce the number of claims that are made against them;
• When claims do arise, aim for their earliest possible satisfactory resolution;
• Use external experts only when they can add value in excess of their costs;
• Ensure that lawyers and other suppliers are purposefully instructed so that they focus on what is required of them and achieve this on time and within budget;
• Apply a cost-conscious approach to all aspects of each claim, including its resolution.

It has, so far, addressed the following key issues;

• The evaluation of lawyers so as to be able to select the most appropriate for each particular job;
• The development of fee structures which align the interests of law firms, members and clubs, giving less emphasis to hours worked and more to results achieved;
• Making more use of technology to provide information, extend control, reduce administrative costs, and to help assess the value of the legal services provided.
• Reviewing the work practices of all who participate in the handling of claims for members, with a view to improving co-ordination between them.

The clubs and their members need to think more carefully about what they really want to achieve when faced with a claim. This will enable more precise definition of who should do what, at what cost and by when. The intention is not to settle cases at all costs, but to identify a realistic case strategy as early as possible and to get all concerned to sign on to that strategy. This will entail an increased focus on detailed briefings and budgets which will also help identify when costs are being spent which are not adding value or becoming disproportionate to the amount in dispute.

It is hoped that this will help revolutionise clubs' dealing with lawyers and other external providers. It is not a crude attempt to squeeze the hourly rates of outside service providers but rather for the lawyers, surveyors and club correspondents, guided by club managers, to work more smartly in the interest of members and be properly rewarded for doing so.