Episode 2: How to Find a “Win” in the Data and Fill the Gaps – P1

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Wesley Todd [00:07]: This is the Litigation Management podcast. And the Litigation Management podcast is where I interview some of the most successful and influential people in and around the insurance and litigation and related industries. And in this podcast, I’m going for home runs, not singles, I’m not trying to give you the latest legal strategy, you can find that anywhere. I’m interviewing people that are working on the industry structures around litigation, the things that lead to more or less litigation things that impact my audience, the claims, litigation professionals, the attorneys and everybody around there. And I have a great group of guests to kick off this podcast, there are people running courthouse data software, people that have are converting everything to video through depositions, mediations, things like that some of the experts on the insurance side, and then I have folks that kind of know everything about everything like Matt and or at least for relevance of this audience. And Matt Queen is a recovering insurance defense attorney. But unlike me, there’s so much more to the story so much, so that in fact, I’m going to kick it to Matt, and have him tell you a little bit about his background and experience in and around the insurance and litigation industries. Welcome to the podcast, Matt.

Matthew Queen [01:32]: Thank you very much. You’re too kind, too kind to answer your question or more to kind of respond to the call. Yeah, I got, I joined the carriers from insurance defense. I had a just a terrible time after law school getting a job. So I graduated in 2010 from the Georgia State College of Law. And I was an average guy, I was ready to go be your boy for all one call. That’s all type stuff. I was working with a small, I love and we call the chop plants firm. I mean, we had a lot of slip and falls, we were taken. We’re working with independent loss adjusters trying to figure out how to get some of those cases into litigation. I mean, it was really lovely place. And it pretty much folded. Just business dried up, you know, subsequent 2008, a lot of law firms are doing rough, and I had to learn how to throw a curveball, just to find employment. So I got a Master’s of tax while I was in law school. And I went to go work for KPMG right out of law school. In fact, it’s time for so tough that even KPMG barely had room for me, I fly all the way to California for my first job, but it was well worth the KPMG. I got exposed to insurance from I guess the balance sheet standpoint. And I saw these things called captive insurance companies. And I saw that their net effect on taxes was incredible. Their net effect when you combine with captives with commercial solutions, and impacting was profound power for corporations of all sizes ranging from you know, Nissan and Trader Joe’s all the way down to you know, mid-market companies you probably haven’t heard. So I eventually left KPMG as the vast majority of people do, and went off to back to Georgia where I started my own law firm. And I was just bringing in whatever I could. And I was noticed by a small plane of shop, they saw that I could bring in a little bit of business, they made me a deal. And I started doing good old fashioned litigation. It was a thing basically, I think came to the door, but I was primarily a plaintiff’s attorney, then I guess it always kind of felt like I was on the outside looking in mostly from starting from, you know, the big before consulting and transitioning back into litigation. So when the opportunity came to go work for an insurance defense firm, I jumped at it, there was a little bit of a pay raise and it also gave me an opportunity to jump into wrongful death and much more sophisticated litigation that a lot of your listeners will be familiar with. That diverse background in law and accounting may be attractive to become the General Counsel for a Captive Insurance Manager. We had a risk retention group that we were managing along with about 11 or 12 other mid-market cap is all focused on health care. And I was General Counsel there for about three and a half years until my current employer recruited me out to basically head up re-establishing a new panel, and for the Hiscox Insurance Company, and then I have also been tasked with reducing the allocate loss adjustment expense. And I’m currently heading up a data initiative for the company. So it’s taking me around. I’ve done pretty much everything at this point and insurance aside from underwriting. It’s given me, you know what I would like to think it’s a pretty healthy perspective.

Wesley Todd [05:06]: Yeah. I’d say so, that I mean, basically what you’ve done is kind of climbed at least from where you’re in or what you’re looking at, right? You started with one case as an attorney. And then you moved on to, like, probably a smaller captive group, which has a handful of cases or a handful of claims, and but also not just after the fact, but you know, how to manage that as a business entity in and of itself, what’s it cost to stand up? And what are my potential exposures? And how do I administer that? So you not only looked at a group of cases, but the whole business around the cases and claims, and then now looking at it from a higher level operational and data perspective of, okay, well, let’s not just look at individual isolated as applied to that business but let’s look at what the numbers and what all the facts tell us. So, and I think that that’s really interesting that that’s your background, because that’s why I wanted to have you on the pod. Because we have a lot of attorneys, a lot of adjusters, a lot of claims executives, and like me, or like I was, a lot of us can be one trick ponies, we get really good at something, it gets very lucrative. And we know we’re the experts in the space on something, and there’s nothing wrong with that. But there’s so many things going on around us, all of a sudden legislative reform gets passed, and we’re out of a job, or there becomes a new trend in the insurance market. And maybe it’s, you know, some of this particular carrier stops growing, and this other particular carrier type of carrier or captive starts growing. And so we’re having to shift clients or shift practice areas. So this like, Matt, I think you’ll be, you’ll have a really good perspective, which is the purpose of this podcast to help these folks that are experts in claims Litigation Management, better understand what’s going on around them. Because the reason I felt like I need to start the pod, I think there are things moving are, things are moving quite a bit faster than they were previously. Still not as fast as to everyone’s liking. But the quicker we can get out ahead of this and make sure everybody understands it, the better the army is Red Air, you know, the more the army is ready to serve for the next phase of the litigation, what that’s going to look like the claims. And the client, there’s gonna be different things that clients too. So perfect perspective for this group. What are you working on right now that’s exciting you, interesting to you? You’re the type of guy that looks forward quite a bit.

Matthew Queen [08:01]: Yeah, like I’m heading a data initiative in our firm. And one of the things I’m trying to create is just some semblance of who’s good. So I’m the vendor manager. And I could not tell you with a gun to my head, who my best attorney is. And I think subjectively, we all have our guests. But if I had to put any sort of objectivity around that I’d be, I just be fumbling. And at the end of the day, we’re drowning in data, but we don’t manage it very well. And this is an industry wide problem. And each carrier has more data that knows what to do with, or you have a lot of different reasons, some of which is legitimate, why we’re not accessing it very well? But if I could summarize that, it’s like three legs to the stool. Number one, what is the problem? And number two, what is a win? And number three, if we know what a win is, and how do we win? Frankly, number three is already answered it defense attorneys can tell us how to win, that is their only job. And they do very well. Loss adjusters are not their loss adjusters are in TPAs, for the most part equally as lost as we are in claims function for every carrier, the first two legs of the stool, what is the problem? What are we gonna do with this data? And number two, what is when our fundamental, and I define a win as valuation. This is a multi-billion dollar opportunity that I think your firm Syzygy and a few others are intuiting. But we as an industry just have not recognized just how valuable proper valuation of a claimant, and I look at Litigation Management as if not the first step is maybe for the first several steps toward getting us there. It is not unreasonable to value a claim. I mean, let’s think of the simplest thing other than Georgia. So if you have a broken ankle in Fulton County, Georgia, how many millions of cases are there about broken ankles across the country? And how many hundreds of 1000s of broken ankles so if you hadn’t Georgia, how many of you had in Fulton County? How many variables can you possibly be? You got the special damages, you got an expert witness that’s going to add or detract some value. We know who the experts are. I mean, there’s only so many of them, plaintiffs firms, again, there’s only a handful of them that are in good the rest of this chop shops. And then what else? You know, a few other factors beyond that, maybe race, gender, those sorts of things that’d be a design premium or a discount, but you can quantify the data. That the data is there. So why have we not sat there and started getting really objective? And then, you know, even if you think that maybe premises liability is not the place to start, fine, go to automobiles, millions upon millions of automobiles crashed every single year. And yet, we still, you know, comes to try to figure out like, what is the value of this claim? Now, the property portion is generally known, but the casualty portion, and soft tissue damage, we’re sitting around, hoping that the defense attorney just does a good job, somebody comes in, you know, they’ve got three or four bones broken in her arm, we know there’s going to be at least one surgery, probably a subsequent surgery, which generally speaking now what the cost is going to be the Medicare reimbursement or whatever the proper valuation is, put a number on, settle it and get it out the door. And more than that, if you have a good idea that liability is there, you should be paying those claims immediately, every piece of data we have in an industry is that the longer a case is open, the more expensive it is, because you’re paying the attorneys, the loss adjusters or the TPA for the time. So just settle the damn thing, put a proper number on it and get it done. That perspective right there is a winner’s perspective, but it’s tough. What field’s data should we be collecting in the first place? What correlations are we missing in the data? So for example, part of the valuation should be accounting for the fact that, you know, if you have a broken ankle, but they also have MS. Okay, well, that may be something we want to talk about, exactly, the existence of MS may actually be a mitigating factor, because they may have tripped of their own accord, maybe they should have had a cane. Again, you know, it’s gonna be hard to just put a simple number on it. But there just aren’t that many variables that remain to be discovered. When you look at the volume of litigation across the United States, 50 states, God knows how many counties. This data should I mean, it should be a solvable problem. And I haven’t seen a lot of people really look at claims valuation as the multi-billion dollar opportunity that it is, but what am I buying when I buy an attorney’s time? I’m buying a win. But if I cannot sit there and tell you what a win is, because I’ve not done the research to do what evaluation is. And at the end of the day, everything is looking backwards. And we post hack rationalize, in other words, so much of what we do to make ourselves look good. And it’s 100% selfish. It’s not just the defense attorneys, we always like to use as our punching bag. So too expensive. They don’t do a good job, blah, blah, blah, yeah, but we’re equally guilty of that within the carriers, the head of claims, is the first in line to tell you that he or she is doing a great job because it’s settled that big client. But we don’t know that we were getting the best value. Now there are some red flags, if you’ve taken no claims to trial in the past 10 years, that’s a red flag that you may be overpaying for your claims. Clearly, you need to hold the plants firms to the fire every once in a while, not all the time but 1- 3% of the time, it would seem about accurate. But what are the results? I mean, what’s a good verdict versus a bad verdict? The data is overwhelming, and it’s not being looked at. So that’s to me, that is the heartening thing is I’m seeing not just our firm, but other carriers are waking up to the fact that data science is a legitimate field that is now leading clients or it should be leading claims. It just needs to be part of the claims philosophy, we reserve to the most likely outcome. Okay, tell me how we get to the most likely outcome? Tell me, how that differs from claims valuation? So that’s kind of the thought process that I bring the claims enjoy litigation in general.

Wesley Todd [14:00]: There’s a lot to unpack there. You know, I agree, we talked before, that’s exactly our perspective. And so we’re thinking about, you know, like, okay, well, it’s obvious to me, it’s obvious to you, you know, we’ve been doing it for a decade, you know, you and I each in one form or another way as attorneys and then and now and is more sort of roles were sitting handling 100 cases and now you’re doing 100,000 to software and you’re seeming you know, you’re feeling the same thing. So other than us dragging you know, you dragging your clients and your companies through that, and us dragging our clients through that, what you know, is there something that’s going to go on in the broader market, in the broader insurance market or something maybe that’s already going on that would like, are the people in this colony need to learn about, or is this just going to be the status quo forever?

Matthew Queen [15:05]: So, I mean, as COVID showed us things change when they have to. So I mean, we’re recording this from homes, we got fully functioning home offices, that was not something most people had years ago. So I think that the reinsurance markets being as hard as they are right now, are pushing a lot of changes in the marketplace, explicitly in healthcare, and specifically, in skilled nursing. You’ve seen a lot of carriers exit the marketplaces, renewables have gone through the roof, that’s creating an opportunity for the captains, the captives are the ones who are going to sit there and make some changes. Now, it’s not just captives, but also programs in general. So all of these specialist MGA’s MGU’s captive managers, they’re going to sit there and re name the game when it comes to how to manage risk. So the carriers have one tremendous advantage, and it’s the rich person’s advantage. If you have enough money, you can get away with murder, metaphorically, or literally, in some cases, you don’t have to be that good if you have billions of dollars in reserves. And the programs that are that are starting up right now are by necessity having to be better, they’re better at underwriting. They’re better at claims management. And the way you look at as you find the unknown correlations. So, if assuming you can get good data, robust field data, then your job as an underwriter is not to look for the fantastic accounts, all state’s going to get that AIG and Chuck, they’re going to get that. You have to find the leading indicator on an otherwise dog of an account and be able to assess that, you know, their employee to client ratio has changed, so you know, maybe that correlates generally with fewer slips and falls and whatever. So their cost of risk should go down. We’re going to get them to better rate, we’re going to take a flyer on that, that’s how you build a program. But you don’t do that because your underwriters have a good sniff at what a risk is, you have to have the data. And then where does that go back to claims, because claims needs to be informing underwriting of how these things work. I mean, Oh my God, this is this is how small insurance works. A lot of people seem to forget that insurance is not that complicated. Money comes in one direction, premium goes out and one of two directions, dividends or claims. That’s it. It’s no more complicated than that. So when I was General Counsel, I was working with the Chief Underwriting Officer for a small company. And Florida changed bad faith laws. Very long story short, I came to him I said, Look, we can’t defend this stuff profitably, here’s why. So we looked at our limits. And we said, well, we have 50,000 150,000 limits in Florida, we got rid of that, then we trifurcated Florida into three different areas, South Florida, expensive, Mid-Florida, not so bad panhandle, whatever, they very cheap. And then we stopped writing a whole line of business, we could try for catted our rates. And as a result, we’re able to navigate some changes in the laws, but that’s 100%, the intelligence sourced from claims the data, going back to underwriting informing them that at least one line of business is going to inherently be unprofitable, and then making the changes there too. So in that sense, data is not just some buzzword that claims needs to be using. Claims is intelligence for underwriting. And when they’re working hand in hand, like that, that’s how you can sit there and make some real impressive things in the marketplace, that some people like Metro mile, come up with ideas like paying as you go, the algorithm behind that is a function of the risk that’s being underwritten, and somebody figured out you know, it’s not genius, the less you drive, the fewer claims you have, we should be able to price that out accordingly. And there’s similar kinds of concepts out there that are starting to filter their way from the program’s up into the carriers, as people start to realize that you can’t just sit there and you know, do the aggregate theory of underwriting. You know, Hank Greenberg had this idea that if you just underwrote a large enough book of business, the bell curve would take over and you’d have some amount of profitability. That doesn’t work, you will never get there. You just won’t. So as a consequence, you do have to be have some sophistication as to the risk.

Wesley Todd [19:24]: Yeah, I think you raised some really good points there. I saw it again, I get it. I get the reminder once every two months where somebody from insurance nerds, or one of these podcasts says claims is the product. I mean, we’re insurance because the whole point is like they’re buying the ability to get paid on a claim, and you’re buying it for a certain price. So if I buy it for $10, and I only get $2 over 10 years, you know that’s not great for me. If you can drive my costs down by doing a halfway decent job to $5, you’re doing a good job for me. I’m paying less for the product, because you’re doing a halfway decent job. And I’m still okay probably with losing three, when it’s all said and done, which is good for the insurance company. And good for me too, because it could have been 10. You know, and now in the broader scale of things, and you’ve already mentioned a couple of lines of business and maybe sees increasing pressures, I want to ask you about two specific things, social inflation and nuclear verdicts. So the only way that Matt and I just talked about changes, or that the old way doesn’t work anymore, is if there’s some broader change going on in the market, whether it be that there’s going to be more litigation, or more severe litigation, or more claims, or that the insurers are going to change, this is kind of what you’re getting at as far as your trends and that there’s going to be money flowing into more difficult, volatile risk that aren’t there. They’re still profitable, but they do, you know, they are going to feed a lot of insurance defense attorney’s families, and plaintiffs lawyers families as well. So there’s kind of those two pieces there. There’s a we’re doing this intentionally and we’re going after different risks that maybe were more difficult before or and those are going to be more litigious, or just in general, areas of business or lines of business, you’re going to get more litigious, are these just wasted in a lot of people have a lot of opinions that this is all kind of made up, and that it’s actually not going on or that it’s very isolated social inflation, nuclear verdicts, or that it’s sort of anecdotal and not necessarily reflective of a trend of significant transformative trend. You know, what are you think about? What would you tell if you were educating this group of people on the future their market from an opportunity standpoint, are there going to be more litigation to work on less? And if so, why?

Matthew Queen [22:03]: As it relates to social motivation, nuclear verdicts, I just can’t bring myself to worry about it in the same sense that you can control the frequency of risks through risk management, you’ll never be able to control the severity, some who’s going to die, if you have you know, large enough field of risk places, Walmart, Target, all those Home Depot, somebody’s going to have something fall on their head, they’re going to die, it doesn’t matter how hard you try. And that’s potentially going to be a tremendous exposure. But the frequency of that, you can definitely slow down the frequency through risk management. So when you tell me about social inflation, or nuclear verdicts, I know they’re a little different but I just disregard nuclear verdicts. Just out of hand, maybe trying to one 3% of our cases. And if one of them goes south, hey, you know, I mean, you can’t control for that. That is the nature of the jury system, for better or worse. Social inflation may have some merit to it. There’s a lot of thought on that. I look at a little bit like climate change. You know, there’s evidence for it, and it appears compelling. What the heck am I supposed to do about it? I’m like, there’s literally nothing I can do to stop the world from warming. So at the end of the day, I’ll recycle. But I mean, that’s about as much as I can do. So is firm in terms of my litigation philosophy, I honestly don’t care how good the defense attorneys claim that they are, if they think that they can stop nuclear versus social inflation, that’s like stopping the force of nature. And quite frankly, tape, being good at your job is table stakes. I mean, when you start having people, multibillion dollar insurance carriers evaluating your firm joining the panel, the expected win, so what I care about is getting on base. So it’s not that important than a homerun, nobody cares. So I mean, every defense attorney like I mean, it’s very common. I mean, I’ve had to now start something guys on the skull. When I asked you for you to submit your rates, I want to see your case cycle time, I want to see the settlement to indemnity ratio, if you even capture that kind of data, and if not, wouldn’t be the worst idea. Sure, it’s a misleading statistic. But why aren’t you on top of that? Why is it that I’m the ones who sit there wondering what the correlations of your data are? So I don’t want to get into all the metrics you may want to look at for a good defense attorney but that’s what I want to see. I want to see the data and specifically when I want to look into that data, is that you’re not just focusing on settling large cases for low dollars. I want consistent, solid results over time. Organized attorneys who are good at pushing cases to their logical conclusion at reasonable costs get to be on my panel every day of the week. I don’t really care which cost at that point. Because if you’re driving your cases efficiently, I’m not going to beat you up over price because in the long run, you’re a better value on my team than some superstar trial attorney who can win. I expect you to win, but I don’t need Jerry Spence, I need someone who can sit there and push cases forward. And quite frankly, 99 out of 100 or even 900 cases out of 1000 are just not going to merit the time and effort for a trial. So what’s far more important, someone who has the business sense to understand we need to fold on this case, get the heck out of there, clear liability, and the more time you spend on it, the more expensive business case, business decisions right up front. And if we roll the dice on a case and we lose, that’s why we have reinsurance. That’s why we have reserves. I mean, that’s just a cost of doing business. And when you start to look at this from this, okay, so I’m in a mid-market carrier. And I come out of the very, very small world capitalist. I cannot compete, like my competitors to beat my competitors. I’m not AIG, I’m not chump, they have better data than I do. They have much more sophisticated analytics, and their data reservoir is infinite. So we have to try different tactics and smaller shops, to be able to get the kind of things that we need to happen. So what I recommend everyone to do is focus on your strengths. So if you’re a professional liability carrier, you need to focus on your knowledge of the industry. If you if you’re not capable of doing that, you’d get out of business, but I don’t think you can get away. Like I was saying earlier, we’re just under underwriting to an industry. Again, woman skilled nursing because I know it well, if you think that underwriting is just looking at five star risks and loss runs, you’re going to get their lunch eaten by the smaller shops. So when you look at claims, if you start looking at you know, wow, this guy won a motion for summary judgment, He must be really good. Now, it’s very likely he went up against a stupid plaintiff’s attorney, we’re all acting like it’s a Herculean effort, but behind the scenes is probably someone didn’t do a very good job. So we can’t evaluate you based off of your absolute best results. We need to be looking at whether or not you under thing you understand things like healthcare reimbursement. Again, I know a lot about healthcare. So I’m going to focus on there, but my defense attorneys, my panel, my TPAs, need to understand these kinds of sensitivities. How does the money work in the industry that we’re insuring? So yeah, I mean, obviously, the defense attorneys and even the adjusters need to know duty breach causation damages, because like I said, that’s table stakes. I mean, once you get 5, 10 years into a career, you have to know the basics of liability and probably 30 or 40 cases off the top of your head that’s basics. So do you then understand the client’s business well enough to be able to say, wow, man, you know, I saw here that, we had another elopement the other day you know, have you considered, you know, this new technology over here. It’s cost effective, it’s super cheap, we can roll it out. It’s going to reduce the frequency of claims. Defense attorneys need to be having a discussion with the insurance. I know that may be something you’d think for underwriting to be doing, but you can’t let underwriting stop with the underwriters. And claims really shouldn’t stop with the claims handlers. It’s an ecosystem and it all revolves around one thing, risk. Okay, so for misunderstanding this, if you think your role as a defense attorney is in the courtroom, or if you’re a claims handler, and you think your role is to push these cases to settlement, you’re completely misunderstanding that business we are all in. We are in this your business called “Risk Finance”. And risk in and of itself is more like a force of nature than it is something that’s quantifiable. I mean, it’s tough stuff and it does involve a multitude of professionals to be able to identify, like the blind men around the elephant, or the underwriter see one thing, claims industries see another but the defense attorney see another, and that’s where all eyes need to be going, is trying to put our eyes around what the risk looks like. And a risk for defending Insurance Brokerage is gonna be different from defending dentist is gonna be different from hospitals can be different from everything else. And we need to have that kind of appreciation and claims in order to really be able to ratchet down the amount of money going out the door in claims, so we can increase the money going out the door for dividends.

Wesley Todd [29:02]: Wow. So let’s say I agree with almost all of that. And let’s say the audience you know, there’s a natural, you’re gonna have a natural tending towards the people that are listening to this are probably also more forward thinking, and they may not I don’t think that we all know all the details of what you’re talking about. But we’re all driving for those same data driven, like you said we’re in a business of financial analysis about that. So let’s say that that you just put that perfectly.

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