Insurance

A RAFT of measures to ensure its members get Value for Money from lawyers and other consultants is being introduced over the next few months by the UK P&I Club. These measures focus on commercial strategy, standards, performance assessment and budgeting.

The club is seeking a consistent approach to early case assessment for contentious claims to ensure a clear, agreed, achievable and commercial strategy for each one. Budgets will be deployed as a management tool and guide to likely costs. It is hoped that this will also help set standards to measure and assess the performance and cost-effectiveness of claims executives and outside experts. At the end of each new claim, lessons will be noted. The club also plans to be talking to and working with many members and suppliers about these initiatives.

Fees paid to external suppliers of professional and consultancy services in respect of member claims have clustered round $63 to $68 million per annum in recent years - the club's largest expense after the claims settlements themselves. Against this background, the UK Club's Value for Money programme was launched in 2001 to reduce claims handling costs while achieving ongoing improvements in the efficiency and effectiveness of claims processing.

The club devotes considerable resources to helping members prevent claims. However, when they do arise, it will continue to strive after the best outcome at lowest cost. The global programme will eventually involve all the club's managers and claims executives and leading external experts.

Independent research shows that the UK Club's claims management generally works well. However, it has also highlighted areas where there is room for improvement. There have been claims which showed:
limited understanding of respective roles and objectives no clear strategy and a limited understanding by external experts of members' commercial needs over optimistic advice at the outset, followed by increasingly pessimistic advice as the trial stage approached protracted legal battles, where reductions achieved were considerably less than costs incurred.
excessive and unexpected costs through poor budgeting and cost management routine or mundane work being carried out manually, when technology could have handled it faster, more efficiently and less expensively costly and inefficient delays. Reacting to these concerns, the UK Club has carried out a detailed review of the claims management process, obtained views from members, explored improvements with law firms, principally in the UK and the US, created value and service standards, and developed a two-day Value for Money workshop for claims handlers. These are staged regularly at Thomas Miller offices around the world.

"Progress has been made without any adverse effect on our relationships with major external suppliers," explains Charles Fenton, Value for Money project leader and a member of the P&I global management team. "Indeed, we have been delighted by the positive and enthusiastic reaction of the law firms we have been working with." However, he believes that managers, lawyers and other experts and members all need to improve their approaches if improvements are to be achieved and sustained.
Managers could perform better in managing budgets and costs, helping members avoid risks and claims, using technology to improve efficiency, communication and cost-effectiveness, and applying highest practice standards to achieve best results.

Lawyers and other experts do not always make best use of technology or best practice. They may lack understanding of members' needs and businesses, show inadequate cost management skills, and spend too long on technical rather than commercial and practical items. Members should share their principal commercial objectives and information and material concerning claims with club managers and external solicitors. Cases are regularly lost or settled unsatisfactorily because of a lack of relevant data.

Members should also not keep using the same external experts simply because they have always done so or the hourly rate is the cheapest. They should be realistic about possible solutions and pay a fair amount at an early stage when liability is not an issue rather than incur exorbitant and disproportionate costs later. Claims records are affected by settlements and by costs.

"Value for Money goes much further than just keeping a watchful eye on hourly rates. It has to focus on the performance of external suppliers," emphasises Fenton. "Our members expect and deserve the best possible advice to avoid or minimise claims - and the best possible value from those acting for them. Through better use of technology, communications and internal and external experts, we can do more to achieve this. The extent will depend on the commitment and support of everyone involved."