Question:

I am the managing partner of a sixteen-lawyer insurance-defense firm in Orlando, Florida. There are four equity partners in the firm, twelve associates, and eight paralegals plus administrative personnel. We manage the defense for various insurance company’s  insured primary in auto accidents, premises liability, and slip and falls cases. Our work comes primarily from four insurance companies. All of our clients are billed by the hour at low hourly rates with restrictions on the amount of time that we can spend on certain matters. We have resisted using any form of AI and we are continuing to staff our client cases as we have always done. Our clients are asking us what and how we are implementing AI and to reduce associate and paralegal time spend on their cases. I realize that we must change our ways and begin to implement some level of AI in our practice. However, I have concerns as to how we survive in a practice where partner livelihood in a low bill rate practice has been based on high billable hours and the profit margin off of associates and paralegals. What do you see as the impact that AI is having or going to have on insurance-defense law firms?

Response: 

AI is likely to have a major impact on insurance-defense law firms. Associates may not be totally replaced as firms will be able to handle more cases with fewer billable hours. Insurance companies will expect faster turnaround of their cases at lower costs. Implementation of AI by insurance company outside law firms will be a requirement.

Insurance-defense law firms will see the following changes:

  1. Much of the following associate attorney document related work will be handled by AI. (Many of our plaintiff personal injury clients are already using AI for this work):
    1. Summarizing medical records
    2. Reviewing claim files
    3. Summarizing depositions
    4. Extracting facts from police reports and incident reports
    5. Chronologies and litigation timelines
    6. Legal research
    7. First drafts of motions and briefs
    8. Discovery requests and responses
    9. Interrogatory analysis
    10. Drafting correspondence to adjusters
    11. Comparing pleadings against the facts in the claim file
    12. Identifying missing evidence
    13. Preparing deposition outlines
    14. Reviewing expert reports
    15. Analyzing large document productions
  2. Billing will shift from the billable hour to various forms of alternative billing. Several years ago, several major insurance companies shifted to flat-fee models and more insurance companies are likely to do the same. Several of our clients have reported that their effective rates have been higher under flat fee billing than they were when they were under hourly billing. AI will increase law firm productivity, but it will also decrease billable hours. Insurance-defense firms will have to find ways to maximize revenue and profitability under the new paradigm.
  3. Insurance companies will become more demanding than ever and expect more from their law firms. They will use AI to measure their law firm’s performance and case outcomes. AI therefore will not only change what defense lawyers do. It will change what their clients can measure about them.
  4. The pyramid model of stacking associates and paralegals could dramatically change. Gone will be the days of partners living off the profits from the labor of associates and paralegals. Firms will not need as many junior lawyers per partner and their will have an effect upon:
  5. AI may make experienced lawyers more valuable and trial lawyers may become more valuable.

When it is all said and done a major question will be:

  1. What will be the billing model? Hourly billing, hybrid hourly billing, contingency or success fee, etc.?
  2. Who will receive the most benefit – the law firm or the insurance company for increased productivity?

With reduced billable hours insurance-defense firms will have to either reduce associate/paralegal headcount or increase their case volumes. Business development will become more critical as opposed to simply relying on a handful of insurance company clients.

While AI is having and will continue to have a transformational impact upon society as well as law firms, we have seen this before with other forms of technology and law firms have successfully adapted and I believe that we will once again.

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John W. Olmstead, MBA, Ph.D., CMC

 

 

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