Best Practice: Surviving in an insurance defense firm: Reinventing the practice & staying in the game

Asked and Answered By John W. Olmstead, MBA, Ph.D, CMC Q. I am the founding partner of a 17 attorney firm in Missouri and I serve as the managing partner. We have 12 partners and 5 associates. Our practice is entirely defense - personal injury and workers compensation. The majority of our clients are insurance companies and third party administrators. We represent a handful of self insured companies. While we have had a successful past 15 years our firm is now struggling. We have lost market share and our case counts are way down due to the economy and regulatory changes in Missouri. Our profitability has suffered as a result. We need to make some changes but are unsure where to start. Could you share your thoughts? A. The present state of the insurance defense practice presents numerous challenges to the law firm. These challenges simply cannot be ignored – they will have to be faced head-on. The solutions are complex and will require time to sort through. While solutions can come in different varieties, they will take the form of one of two general strategic approaches.

1. Reinvent the Practice - Stay in the Game
2. Exit or Diversify the Practice

The remainder of this post will focus on reinventing the practice and staying in the game. For some firms the appropriate strategy may be to stay in the game. These will be firms that have a well-established reputation in insurance defense, where insurance defense represents a major source of their revenue, and where adequate leverage and profitability and leverage exist. These firms will not be firms that dabble in insurance work. These firms will be committed to this practice area and will focus on it exclusively. Some of the following actions will be required to reinvent the practice and stay in the game:

1. Get leverage back on track. Tough decisions will be required here. High priced senior associates will have to be let go. Unproductive partners will also have to leave. Paralegals should be hired. Ratios need to get back to 4 to 1.
2. Partnership admission criteria will become more demanding. Time required to make partner will be lengthened.
3. Compensation will be based upon performance.
4. Billable hour quotas will be enforced.
5. Expenses will be tightly controlled.
6. Flat fees and other forms of alternative billing will be commonplace.
7. Unique out-of-the-box solutions will be designed to provide tailored services to meet client needs and differentiate the firm from competitors. The firm will no longer wait for the insurance company to take the lead. The firm will take the lead and provide clients will a menu of service solutions.
8. Technology will be employed to the fullest extent to re-engineer work processes. It will not be used just for technology sake or to keep up with the corporate litigation law firms. When technology is employed old outdated practices and processes will be eliminated.
9. Standardized practices and procedures will be developed and used throughout the firm wherever possible.
10. Client focus groups, insurance company councils, and other forums will be formed to open up channels of communications with clients in order to mend the tarnished client relationship and reestablish a business partnership. Innovative insurance defense firms will take active leadership roles in this endeavor.
11. Aggressive marketing and business development strategies and plans will be implemented in order to maintain appropriate growth rates and profitability. Relationships with unprofitable clients will be terminated. Marketing with be done as a team approach as opposed to being a function done at the individual lawyer level. Both firm and individual personal marketing plans will be commonplace.

Click here for my article - Trapped In an Insurance Defense Practice Click here for our blog on law firm strategy John W. Olmstead, MBA, Ph.D, CMC, (www.olmsteadassoc.com) is a past chair and member of the ISBA Standing Committee on Law Office Management and Economics. For more information on law office management please direct questions to the ISBA listserver, which John and other committee members review, or view archived copies of The Bottom Line Newsletters. Contact John at jolmstead@olmsteadassoc.com.