Episode 10: A Guide to Social Inflation: Part 2 – How to Mitigate the Risk Transcript

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Intro [00:06]: Welcome to part two of our podcast, a guide to social inflation. We pick up the conversation with Taylor Smith, founder and president of Suite 200 Solutions, as he and Wes discuss specific ways we can mitigate the risk of social inflation.

Wesley Todd [00:24]: This is fantastic, Taylor. I really appreciate it. I literally have spent so much time researching this. I never heard that all in one spot.

Taylor Smith [00:33]: So you get, I guess, Wes and my view. I’ve been lucky it is a topic that comes up at every Chief Claim Officer summit that I’m fortunate enough to attend, it comes up that the claims college, it comes up at the litigation Management Institute at this symposium. I think that ultimately understanding those numbers and some of the drivers is the only way that we as an industry are gonna tackle the problem in a meaningful way. I mean, I think to some degree, we run without understanding those numbers or trying to assemble them in one place or trying to correlate them, we run the risk of feeling victimized, like, look where society is going, or, you know, look how bad it is, or can you believe it? And I think that we actually have much, we have many, with relatively few industry changes and the addition of some new technology, we have the power collectively as an industry to combat this. You know, I don’t know, it’s commonly agreed that the plaintiff bar does a superb job of sharing information. It’s commonly agreed they use technology in very innovative ways. It’s commonly agreed that they’re trying to apply very efficient ways of identifying which venue, which case type, which arguments are likely to inflame people who were the 1/5 of people who are already angry once a day. And there’s no reason that we can’t mitigate that I mean, I probably got sort of 10 things that I think the industry should be doing. And they’re not dramatic, they’re just disruptive, if that makes sense. Does that make sense?

Wesley Todd [02:32]: Oh, yeah. Well, okay, feed me those 10 things?

Taylor Smith [02:37]: Well, when I think about it, only because I’m old, I tend to put everything in terms of people process or technology. I mean, I tried to bucket sort of those things we could be doing. There seems to be general in the people category. There seems to be agreement. I one of the things we do at Suite 200 Solutions is we do big industry surveys. And the industry has always been very gracious in providing their thoughts and opinions in these surveys that there is a, we did the 2020 CLM, National Litigation management at the 2019 CLM National Litigation management survey, we did the 2020 CLM Defense Attorney survey. And in the 2019 study, there was only one question of 163 questions where we had 100% unanimous agreement across roughly 85 Chief Claim Officers, senior litigation executives. And it was this Do you believe that some attorneys are better at closing files than other attorneys? That was the only question we’ve ever asked where we got 100% agreement. And so the number one recommendation in the People section is we have to be better at an industry as an industry in identifying and picking the right attorney, the best attorney. And it doesn’t just mean generally it’s the right attorney for that case, in the right venue in front of that judge, that plaintiff’s attorney on this issue. And I’ll talk more about that when it comes to technology. But that’s probably number one ‘Pick the right attorney’. The second is I think that as a claims industry, we have to acknowledge people’s attitudes toward corporations generally. There is a real risk in our world of selective bias. We assign cases to like-minded people. We work next to like-minded people. We have strong opinions about what’s right and wrong and compensable and not compensable. And yet we have juries that are giving higher awards, we have pressure societal pressures that say corporations aren’t good. So we just have to acknowledge that bias in the industry and factor it into our decision making. That’s the second big people thing. And then the third thing is, on the people side, I just think that we must do a better job as an industry in understanding and mitigating sort of the core reptile brain tactics. I cannot recall where these four ideas came from. I think it could have been the Sedgwick report, it was very well done, and that they resonated with me significantly. And there were four things it had to do during the management of the case with emphasizing the details of the case, not allowing this to become a community danger, Community Improvement issue, but focusing on the details, refocusing the case to this claimant. And this case, it also focused on showing that whatever our insurance behavior was, or the defendants behavior was, it did not violate some kind of safety rule, if they did violate a safety rule, we got a new set of issues, but assuming that you can’t let it get painted that way, if there’s ambiguity. And then lastly, this has to do more with trying cases than in fact, managing them. It’s forcing a juror or impartial viewer to put themselves in the shoes of the defendant of making it clear that if you were a defendant, you would want a logical fair, impartial analysis of the situation. And it’s sort of a reverse use of the of the reptile theory because it’s triggering certain parts of people’s brains to say, if that were me, I would want ‘X’. I would want this to be a safe environment. So those are the three things in the people category. In the process category, this will come as no surprise to any claims organization out there or to you, obviously Wes. But the first is early and thorough case evaluation. And the reason that I have it in the process bucket is that needs to be done as a process, you have to drive that in the organization as a process. And you can’t just rely on good people to do it earlier. It really needs to be process driven. The second is to use mitigating anchoring tactics. So big common thing in negotiation is setting initial expectations, often called anchoring, the defense needs to be in my view, as good as the plaintiffs’ bar in anchoring. There are some states now that allow discovery, to identify openly whether the case has a third party funder on it, there aren’t enough of these states. Now, many, many jurisdictions don’t allow that in discovery. But in those states that do that becomes a very important part, at least in the view of many of discovery, because it flushes out the true economic incentives of the case on the one hand, and sort of exposes what’s going on behind the scenes on the other, and then asking the right questions on each case, which sounds pretty nebulous. But the way I feel that’s very much about focusing on what cases should not be tried under any circumstances. And that’s sort of tied to this idea of how do you identify cases that are at risk for nuclear verdicts? Well, clearly, if it involves a big corporation, you want to wake up pay attention, if it involves a safety violation, you want to pay double attention. Some have said who are very well versed, much better versed in this topic that I am, have said, if it involves alcohol safety violation in a big corporation, you better watch out. And so the idea of identifying actual criteria on cases is very important and that becomes a process as well. Now, people in process in my view only gets better with technology. And in fact in my view, without technology, none of these very few of these other things can be improved upon, given where the industry is today. So anyway, those are the first two West people and process do you want me to highlight I mean, the technology piece is sort of near and dear to my heart. I know it’s near and dear to yours as well. You want me to run through some of the technology things as well?

Wesley Todd [09:42]: Let me give my two cents and then I will and I probably, I might steal 50% of your thunder. What I’ve seen for successful claims executives TPAs is the same thing that you know, I’ve seen as a CEO, I think CaseGlide, you gotta have super talented people you got, it’s all you got to bow down to them, whatever they say goes, get them everything they need and just focus on the best people. The biggest problem that’s going on in our industry is that we are badgering our adjusters and our attorneys with technology, and we’re not incentivizing to do anything. So the attorneys are fighting with on Bill review, and they’re not when they get a win, they’re not getting rewarded, they don’t get a higher rate, they probably one of getting a lower rate. And after because those cases sometimes takes some hours, and then those means you’re going to be get hit more and more for those cases on your actual bill. What we need is, we need to retain that talent in the defense bar. And with our adjusters, we need to pay these people. They’re all million dollar businesses by themselves are all when you equip settlements are all pushing through millions of dollars a year. And we just pound them with process and diaries and different things. And then we don’t empower them with anything. So we make technology, something they have to do, but then the technology doesn’t do anything for them. And that’s why I’ve seen so many of the most talented defense attorneys go to the plaintiff side. And they’re promised a lot of money. And usually the promises kept. So that leaves us with the less talented group. And the group that I’m talking to you today is, you know, there’s several folks that are you know, there’s a bunch of them that are talented. But if we don’t get our act together on the insurance side, a TPA site, it’s so rewarding those folks with higher rates, because we get a bigger return on that, then and less overhead, then it’s, it’s gonna get a lot worse, it’s not just going to be the numbers game. It’s going to be, you get the best versus the worst. And you’re gonna lose every time as soon as the soon as they wake up. So it’s, you know, that’s kind of the combination of people and technology. But the adjusters and attorneys like this is, nine times out of 10, this is not a rewarding thing for them outside of the paycheck. And there’s no reason for that this is so fun is so challenging is so exciting, and it just crushes me to see us just make their jobs more and more difficult each year. So I’m sure that leads you to technology conversation as well.

Taylor Smith [12:38]: Well, it does mean in the sense that I think that most, I don’t know that. If you went to 100 Senior Claim Officers or, 100 Senior Litigation Officers, and you said if I could, if I could predict for you more accurately, which files are likely to end up in litigation, which files are at the greatest risk of some kind of social inflation that you really have to watch out for? I’m gonna say 100, people would say, ‘Sure’, if you can prove it, you can do it. I want it. That is good for me. I think if you said to 100 of the same people, industry leaders, would you like to be measuring attorney performance on something other than billing efficiency. You would also have great support. One of the questions we asked in the 2019 litigation management survey was a question like, do you feel your metrics help you identify which attorneys close files more effectively than other attorneys and the number came back was very, very low. It’s in the 30% range. When we ask people, what do you think about the helpfulness of your litigation metrics today? That was a lukewarm 55 out of 100. And the reason for that, in my view is that we have ended up thinking mostly about the bill, and less about total case cost. And the reason that’s challenging is that we’ve done that because it’s the easiest thing to measure. We all now have many organizations have the ability to process you know, leads oriented up BMS das code based legal bills, and that’s given us a wealth of information about billing. But the legal fees are somewhere between 15 and 25% of total case cost, right. And so that’s ended up with this, we don’t really deep look at a narrow slice of the true costs. And in fact, when we talk about legal fees, while it is true, most organizations feel they’re paying more per file for legal fees than they had been. That’s not what we’re talking about with social inflation. The real loss deterioration is coming from the non-billing side coming from the indemnity Aside from the compensation side, and so I think that we have to measure attorney performance based on different criteria than we’re using today. Most organizations with any billing system today can tell you cycle time and average case costs. Possibly they tried to merge in outcome data on what the case settled for. But it still remains the exception, not the rule. I think that in order to drive these changes that I’d mentioned in people in process, we’ve got to be defining attorney performance on different criteria and permitting for different claim organizations, that’ll be different things. For some, it’s going to be settlement amounts, for some it’s going to be settlement amounts versus what the attorney predicted the exposure would be. For others, it’ll be something else. For me, maybe because of my process orientation. I want technology to tell me the likelihood of success on all the tools that the claims industry has available to it, when it sits down to resolve a dispute. We are in the business of resolving disputes. That is what the claims organization does. The CLM, Claims Litigation Management Alliance, led a very successful campaign for many years to change the name of what we do, not do instead of calling people claim consultants call them resolution experts, because that is what we do. And every claim professional has a series of tools. Every defense attorney has a series of tools. It’s not an extensive list, it’s things like dispositive motions, the strategic use of experts, its ADR tools, mediation, arbitration, whatever it is, it’s the use of statutory offers. It’s the use of jury focus groups, it’s the use of these are just tools that can be applied. And I think one of the challenges is we don’t have data now to identify the likelihood of success, will a discretionary settlement conference be likely to be successful with that plaintiff attorney in front of that mediator in this venue on this type of issue, etc. And yet, when you think about, I mean, the white elephant in the room is this right, the white elephant is that the defense bar has been shoveling that information to claims organizations for 25 years. They provide that information in every report they give to their carrier in the tripartite relationship to their cluck client and the direct hire. They provide all that information, who’s the judge who’s the mediator, what case type? What’s the exposure, what’s my next step likelihood of ‘X’ likelihood of ‘Y’ they shovel that information over the white elephant in the room is that technology is failing the industry? Because in today’s environment, claims organizations rely upon their claim staff to take all that valuable data to extract it from the reports and the emails and the you know, phone calls and whatever other mechanism, unstructured mechanism is being used. And they rely on them to do something with that data. And many claim systems don’t have structured places to put that information. So the claims handler takes it and puts it in their claim notes. So it resides in yet another unstructured environment that can’t be reported on. I mean, it’s no secret Wes that the way you’ve constructed Case Clyde, which is ideal to be essentially a structured data platform into which counsel provides the same information that they’re providing to their clients now, but now in a structured way that can be reported on is the type of technology that is going to be critical for the industry to move forward and combat social inflation and nuclear verdicts by doing the very precise things we talked about in the people in process category. That to me is the white elephant, white elephant, the elephant in the room. Because until we find a weight, as you said, to make technology more helpful to the claims handler and not just be something else that they need to fill out. I mean, I think your models fantastic because you’re not creating any more work. You’re changing the way the work is being done. And counsel fills out that data, not the claims handler. Claims handler has no more work to do they have less work to do because they don’t have to cut it and paste it and put it into claim notes. They can focus on the strategic resolution of the file and they can now predict what’s likely to be successful in sort of the quiver of tools that everyone has the team has the defense team has in front of them to try to get a resolution on the phone. So anyway, that was a little bit of a rant about what I think the elephant in the room is. But to me, that’s the way in which technology is used. And most importantly in my view, the way in which the data points are captured, will drive change in this industry. I think we are overwhelmed with terms like predictive it, predictive analytics and artificial intelligence and machine learning, we’re overwhelmed with it, you know, I don’t think you can offer a service. Now, if you don’t say that’s happening. The reality is that even those tools rely on the quality of the data that’s been captured in the litigation realm, so little of it has been captured historically, we have to change that piece first. So anyway, that’s my rant on that whole, that whole technology piece. Any reactions to that on your side?

Wesley Todd [21:05]: Yeah. First of all, I appreciate the kind words and you’ve played a big role in helping identify the problem and the solutions in the industry. It’s funny, because, I started off this podcast, kind of depressed, I’m hearing about social inflation and the drivers, and it sounded kinda like a tidal wave coming at me, because I don’t know if we can solve for all of that, all those different trends. But then it really did feel like it was in our, when you start talking about the solutions, and what some of the some of the companies are doing, really did feel like the solutions were pretty attainable. It may it this, as we all know, this stuff is slow moving that takes generations and years to catch up, particularly in these large industries, like insurance, where we’re still digitizing claims and the claims process and a lot of these companies., so it’s hard to move on to litigation. But it is interesting how litigation has become a prominent part of the discussion through social inflation, and nuclear verdicts. And they’re in there, it’s in earnings calls. Now, I mean, people are starting to pay attention. And that does give me hope, that you almost might be able. It seems very attainable, the stuff he talks about, whether it’s with us or with other companies, or with new tools that come out that we that these are problems that can be solved. We should with all the opportunity and talent and resources that the industry has, and the first guest, Nick Lamperelli, got pissed off, because he said, there’s billions of dollars sitting on the sidelines at every top 30 carrier, I could be invested in this type of thing. I’m not going to get pissed off, but I understand Nick’s point. But I think this is might be the thing, we might wind up with social deflation in five or 10 years, we could definitely take this in our favor. There’s a lot more open mindedness, a lot more people understand. And we’re getting some stuff off of our plate and claims organizations where we might be able to turn to this as the next lever, for margin and for success in these companies, it makes a huge difference in the combined scene of the litigation settlements are a big chunk of your combined ratios, they’re going to turn to this I have confidence you made it sound very simple and straightforward that this can be you know, when it may not be tomorrow, but it’s you know, over the next few years. And we can be the first to do that I think you raise a great point about the plaintiffs’ bar working together. And defense bar, the TPAs, the insurers, they do got to come to the table and say we got to make some long term investments. And we do need to be sharing data, of course, anonymously in any aggregate in ways that that don’t violate antitrust, but that’s not really an issue as long as it’s done. And in a lot of companies know how to do it. You do that, and you probably could drive this right back down to where it was five years ago. So I feel better. I am nervous about social inflation, but I almost feel like it’s one of those things that’s gonna make an industry that’s been extremely resilient, even more resilient in the future.

Taylor Smith [24:40]: My hope was just be that it doesn’t become the concept that term social inflation, doesn’t become something we complain about. It becomes something we address to your point. It is addressable, and we shouldn’t lose in my mind. We shouldn’t lose hope that we can address that I’ve been fortunate enough to be asked to facilitate a discussion at an upcoming chief claim officers Summit. And there’ll be about 60, Chief Claim Officers there. And we’re going to spend time literally in the weeds coming up with a list of criteria that says, is this case more likely? Does it have attributes that lend itself to complicated nuclear verdict or social inflation pressures? And there’s some of the things I mentioned before it was there alcohol was that a big corporation, was there a safety violation, there’ll be 15 other things. It doesn’t mean that that prediction will be perfect, it means there’s a tool to allow claim professionals to think differently about that case. So it doesn’t get away, so it doesn’t get ignored. So it doesn’t, it’s not treated like every other case. And those are, that’s just a very simple example of things we can do as an industry, to better prepare ourselves and stem off some of these societal pressures. I don’t know that it’ll drive it down, but at least we’ll feel that we are controlling this. And insurance is the law of large numbers. And so in that sense that helpful to do those kinds of things.

Wesley Todd [26:11]: Well, we could talk about this all day, we probably will. But as far as the podcast goes, it’s been a pleasure hearing your perspective, I see a huge evolution, there’s just so much more info and data for people. So much more than I expected. And what a great opportunity for those attorneys and adjusters with hundreds of files that feel this probably, nerd out and go kind of get some of this information here and there. But what a great opportunity for them to see, how, what’s going on in the industry, it’s great for them. They’re gonna be bigger problems to solve so many, so many opportunities for entrepreneurs. And for folks that want to be entrepreneurs, there’s, there’s, there’s really not a whole lot of attention being paid to this, I can tell you from personal experience, there needs to be a lot more players in the game. Taylor, you brought up a lot of research some great reports on social inflation, you also brought up the litigation management studies, you brought up events that are upcoming, before I wrap this up, what’s the best way that the audience or somebody from the audience can reach out to you to find out more about any of those things?

Taylor Smith [27:23]:  Well, you’re nice to ask that I I’m so flattered to be on your podcast, I haven’t gotten over that yet. If people want to know, they can certainly look for me on LinkedIn, that’s easy. If they want to go to our website, it’s suite200solutions.com. And on the list of dropdowns, you can find you can see if you’ve not heard of us before, you can see a list of the more recent studies that we’ve done, including one that we’re just getting ready to do now on the impact of COVID-19 on the virtual aspects of litigation management, which is a topic that interests me very much. I mean, we are doing this podcast, not in person but virtually. And people are practicing litigation virtually now as they have been for the last 18 months, our interest is in learning about what’s going to stay what’s saving money, what’s not saving money, what which activities, people are going to go right back to doing in person and which ones are going to keep doing virtually afterward. So anyway, you’re very nice to have a suite200solutions.com is the easiest, or hit me up on LinkedIn. Always enjoy a good conversation. And thanks for letting me ramble on today.

Wesley Todd [28:35]: Thank you. Yeah, definitely get Taylor on LinkedIn, because there’s always something new. So definitely, Taylor Smith on LinkedIn with Suite 200, you can kind of stay up to date with latest studies or latest events. Taylor, thank you for sharing your story and your insights on social inflation, nuclear verdicts and the whole rest of the insurance industry. And so I really appreciate it. Let’s do it again sometime soon.

Taylor Smith [29:01]: Love to. Thank you, Wes.

Wesley Todd [29:03]: Thank you.

Listen to the full podcast here.

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