As insurers and self-insured entities face a hardening market and increasing costs, second-generation legal e-billing systems have moved beyond the basic auditing function of their earlier counterparts and can now deliver actionable insights into legal spend and the allocation of defense resources. The development of these advanced legal e-billing platforms indeed heralds a new era in cost efficiency, data analytics, and managing legal spend.

The first generation of legal e-billing, a fundamental benefit

For insurers and self-insured organizations, attorney invoices represent one of their largest expense items. Introduced some 20 years ago, the first legal e-billing systems were used to track and audit these invoices, which often accompany insurance claims. These systems, once introduced, were a significant step up from manual processing that had previously been used to usher an attorney invoice through the payment process.

Using a central billing repository, first-generation legal e-billing systems operate by comparing billable charges on an invoice to preestablished guidelines. The system then flags discrepancies for review, automatically identifying charges that exceed maximum hourly rates of partners or associates, or caps on travel expenses, for example. The bill reviewer has the option of focusing on the discrepancies or reviewing the entire invoice.

Outside counsel can upload an invoice to a secured portal, which provides access for in-house processing, and when the invoice is approved, the bill reviewer pushes a button, notifying accounts payable that the invoice can be processed.

These first-generation systems reduce time-consuming invoice reviews and the email exchanges that can clog inboxes. Keystroke errors are effectively eliminated, and lengthy invoices are more manageable.

Most legal e-billing systems that are in use today continue to provide this type of efficiency and improvements in workflows. They also have the ability to produce reports for different elements of legal spend such as filed motions, depositions taken, or travel expenses, all of which can be tracked over time. This information, however, is in summary form, which limits the ability to perform deep cost analyses.

Largely focused on auditing, traditional legal e-billing systems have not kept pace with today’s legal landscape, where increasingly complex claims and near unsustainable year-over-year increases in defense costs are key features.

Insurers simply do not have the detailed data they need to effectively analyze their legal spend and efficiently allocate their defense resources. Decisions are too often based on hunches rather than data.

Modern legal e-billing: An effective law firm management tool

Second-generation legal e-billing systems take a vastly different approach. Instead of relying exclusively on coded data, advanced systems use artificial intelligence (AI) and algorithms to extract intelligence from the line descriptions in invoices, effectively upgrading the quality of output from basic reporting to actionable insights.

Rather than collecting data that is limited to a manual code set that was designed decades ago, data mining technology used in advanced legal e-billing systems extracts the intelligence from the detailed line item descriptions found in the invoices to form a comprehensive and uniquely consistent data set. This is possible because data mining technology reads the text in the invoices in exactly the same way across all billing for all law firms in all regions.

For example, a second-generation legal e-billing system can develop highly granular information that differentiates among types of depositions taken, and identifies the number of depositions or motions taken by lawyer and by law firm. It can also discern the highest-cost activities and help to identify best practices.

An insurer’s understanding of its defense costs can move away from mere summary trend and focus on analyses that increase visibility into the data. This allows insurers to make smarter, data-driven decisions in allocating legal resources.

Using pooled data from a broad client base, an advanced system also has the capacity to predict the number of claims closed and expected cost for the indemnity and defense cost portions of a claim, given certain characteristics of the claim. These expected results can be compared with actual cost outcomes of a claim. Based on these comparisons, insurers can see which firms are performing as expected, which are underperforming, and which are beating expectations. Insurers can better manage their legal resources by moving caseloads away from underperforming firms and assigning larger caseloads to top-performing firms.

As more and more invoices are processed over time, an advanced legal e-billing system’s ability to interpret the line data improves, as does predictability. For insurers, more data translates into better decision-making.

Cost reduction, the end game

First-generation legal e-billing systems typically deliver defense cost savings in the low single digits by identifying auditing discrepancies and streamlining workflows. But these traditional systems are little match for the challenges that many insurers are facing today.

An advanced legal e-billing system, however, can save an insurer up to 15% of its legal spend. The larger the defense cost spending, the larger the dollar savings. But cost reductions are significant even for smaller and mid-size organizations.

Moreover, insurers can now manage legal spend not only as a performance measure but also as a strategic objective—an ability that has become important in light of the increasing attention that many boards are giving to these expenses. An advanced legal e-billing system’s greater visibility into the data gives management the ability to respond with clarity and demonstrate that its decisions are data-driven and proactive.

Ignoring the power of an advanced legal e-billing system today is like using a printed map for directions when GPS is easily available. Organizations from retail to manufacturing to healthcare are using advanced modeling techniques to improve marketing, reduce costs, upgrade customers’ experience, or boost productivity. They are able to make these strides because they now have the data that can drive better decisions.

Advanced legal e-billings that tap into the rich trove of data in insurers’ databases can likewise be used to greatly reduce costs, increase competitiveness, and provide strategic value. The decision to use an advanced system is the logical next step in claims management.

The difference between first-generation and second-generation legal e-billing systems