Self interest ‘blinds lawyers’

Lawyers’ self interest in keeping as many clients as possible may blind them into assuming informed consent to act for both insurers and insureds in disputes, Bond University Associate Professor Kay Lauchland told the AILA Qld intensive.

“Technically you can act for both parties, but it’s not a good idea,” she said. “You cannot act for and against the same person. It sounds simple, but not when you try to apply it.”

When conflicts arose, most lawyers tried to resolve them, rather than step away from one or both parties. Potential conflict arose when insurers retrained lawyers but had not determined whether to indemnify insureds.

She said lawyers owed a duty to their clients to be loyal, protect confidentiality, act on instructions and provide information and advice. “The conflict between confidentiality and providing advice is the source of much litigation.

“If you get information from the insured that would allow the insurer to walk away, you have conflict and a disloyalty issue,” Dr Lauchland said.

If an insurer wanted to settle but the insured wanted to “fight on principle”, the instructions were directly in conflict. “We keep talking to both and try to hose them down but, when it doesn’t work, you are at risk of professional misconduct.”

The Australian Law Council’s solicitors’ conduct rule 11 that tried to explain how lawyers should act in conflicted situations was “an ugly beast”.

“It’s long, boring, complicated and drafted by a committee that didn’t agree with each other.” Complying with the rules “may not save you from a court saying you have done the wrong thing”.

Dr Lauchland said informed consent was sometimes impossible to get, particularly when an insured was not a “sophisticated, corporate client”. Implementing information barriers did not avoid loyalty breaches, she said.

Lawyer: avoid inter-office rivalry

Law firms’ inter-office rivalries should not be evident in their relationships with insurer clients, Sam Graziano, Suncorp legal services panel leader, told the AILA Qld intensive.

A panel session, How to train your lawyer, presented three perspectives on selecting and working with panel law firms.

Mr Graziano said competitive rivalry between offices of the same firm was “dangerous” because insurers “see you as one firm” and want consistency across states. He said lawyers had to know clients’ key focus areas and targets and seek feedback on performance without waiting for it to be offered.

“Be prepared to be challenged” on decisions, including quantum for claim reserves, he said. Fellow panellists, AILA Qld president and Woolworths public liability manager Chrissy Cheesman and Gallagher Bassett general liability team manager Anneliese Wickham agreed they infrequently queried law firms if their reserves differed from their own.

“It’s only a recommendation,” Ms Cheesman said. Ms Wickham said: “We don’t share if we have different reserves, but probably should.”

Mr Graziano said insurers wanted value adds, like seminars, soft-skills education and file reviews, for example, for fraud, tailored to their specific requirements. “Case notes are all well and good, but how will [the case] affect the daily conduct of claims?”

If an insurer was short staffed after a big event “offer to help, it will be well received”, he said.

Ms Cheesman said key factors in assessing panel firms were clarity of performance requirements and measurements; knowing the clients’ business and being user friendly; communicating effectively and working collaboratively.

The client-panel relationship was not based on the label on the champagne. She advised law firms to anticipate problems and have resolutions on hand.

“Pick up the damn phone. You’ll understand the client better by having a conversation than sending an email.” She advised panel lawyers to ask questions and even consult other panel firms for answers.

“Gossip about us; it gives you a better understanding of how [Woolworths] does business,” she said.

Big data changes business model

Access to big data changes the basic principles of insurance, Guy Carpenter CEO Tony Gallagher told the AILA Qld intensive.

Mutualisation was at the heart of the business model, but the ability to “crunch the data” generated segmented customers and finer risk analysis.
Data meant insurers could better predict outcomes, which was essential in a competitive market so insurers could differentiate pricing. Insurers used the “laws of large numbers” and probability to determine the chance of an event occurring. “The more policies you have, the more predictable it becomes,” he said.

In a tariff market, it was easy to make profits, but competition had changed that.
Big insurers had data, but new market participants, without historical data, had to ask more questions to determine if a potential insured was their “target customer” or whether they should charge a higher price.

For example, statistically more young men drove red cars and had more accidents, so car colour and driver age were relevant rating criteria. Insurers could correlate patterns of behaviour to have data-driven decision making.

There was a move from mass customised to individualised policies. Mr Gallagher said technology like drones could make risk and loss assessments quicker, but he warned there were privacy issues.

Insurers had accepted dash-mounted camera evidence, which assisted in fighting “crash for cash” frauds.

Telematic devices that monitored driver actions had “not caught on as much” in Australia as overseas, but one insurer experienced a 30% claims reduction among drivers with telematics. “It’s evolving technology; there are still a lot of questions.”

Mr Gallagher said Australia’s “proliferation” of underwriting agencies was growing “tailor-made policies” and very segmented products, for example, insurance for school teachers or red car drivers.

“If you write enough red-car drivers, you can make money,” he said.