One of the biggest criticisms corporate clients have of their lawyers is that they are not flexible enough with budgets and billing. To offer real flexibility, insurance recovery lawyers need to understand some basic business concepts. Once understood, clients can be afforded the flexibility they deserve.
It is no surprise that clients complain about budgeting and billing options. As a general rule, lawyers are not that good at business, and they are even worse when it comes to numbers. They may be great at the law, but when it comes to understanding business needs, some simply cannot be bothered. This is a mistake. Clients react to business pressures, and so too must their lawyers.
A Quick Business Lesson For Lawyers
Flexibility flows from understanding, and in this case, understanding some basic business principles, such as how an income statement functions, is the best place to start. The income statement formula is: Revenues – Expenses = Net Income. Net Income is known as the “bottom line.” Why, because it is literally the bottom line of the income statement. All for-profit corporations are charged with increasing the bottom line. To do this, they have only two options: increase Revenues or decrease Expenses.
This impacts the practice of law quite directly. Fees paid to law firms are Expenses. They decrease the bottom line. From an accounting perspective, legal expenses are, by definition, bad. That is why managing legal costs is an important function of most large legal departments. For some kinds of legal work, such as litigation defense, results are judged by how much was spent. Corporations know that cheaper lawyers are not better, so the trick is to get the best lawyers, and manage their costs in other ways.
Insurance Recovery Law From A Business Perspective
The practice of insurance recovery law, however, is different from most other practice areas. Great insurance recovery work, unlike legal defense work, can increase the bottom line by increasing Revenues. Given the substantial revenues that insurance recovery work can generate, we function as a profit center for business. This profit, unlike an expense that needs to be minimized, should be maximized. The fact that our work generates revenues affords a synergy and alignment of interest that is not possible with other areas of law.
The fact that our insurance recovery legal work increases corporate Revenues also permits us to think more creatively than most when it comes to billing arrangements. We work with clients to minimize costs, but we also offer flexible billing arrangements. If a client desires to minimize legal costs in the short term, we can do that through creative cost sharing arrangements. In any event, no matter how a client elects to proceed, our goal and the clients’ goal – maximizing insurance recovery – remains the same.
In the end, insurance recovery lawyers don’t need an MBA. But, sometimes, they need to think less like a lawyer, and more like a CFO.
To learn more about our views on understanding client needs, please watch the video. If you have an insurance issue, and want to see if Miller Friel may be a good fit for your organization, please give us a call at 202-760-3160.
Below is a transcript of the video:
The Business End of Insurance Recovery Law.
One of the topics that I think it’s important for lawyers is to understand business. So what we have here is what we call an insurance recovery MBA. It’s like an MBA for insurance recovery lawyers but we’re not really directing at lawyers it’s more directed at potential clients. So if you’re a financial person or an in-house counsel, we think it’s important to understand some general thoughts on how we see the business issues from our end and whether they dovetail with the issues on your end.
When we approach any matter we approach it like a client would, and that is the bottom line is important. So if you think back it would be revenue, less expenses, equals net income. That is the formula that drives all business. So that you have two pieces of that you have revenues, on the revenue side, and increase the revenues or you can decrease expenses and either way gives you a better net income and increases your bottom line. Shareholders are happy investors are happy and you make more money.
So when it comes to law what we’ve seen as there’s been a lot of emphasis on, let’s put it this way controlling costs. So that would be it’s not increasing revenue, it’s decreasing expenses. And this is pretty important, companies have gone to systems that control costs such as Serengeti, E-billing systems and you can monitor things. And insurance companies have taken it even further, if you’ve ever done any insurance defense work. The insurance companies will manage costs by saying, you can only have x number of people working on a case, they can only bill so much time. Rates have to be no greater than X amount.
So they’re all kinds of systems in place and they’re pretty sophisticated to control costs. They’re important, and that’s one thing that we consider and one thing that we have for solutions for as well. But one thing that gets lost in the whole discussion, we think, is the revenue side. And we believe it gets lost because most companies have to be more concerned about controlling costs with their legal spend because there’s no source of revenue that comes from legal expenditures. So what we do is we talk/discuss things with clients. What are you most interested in? Are you interested in controlling costs or increasing revenue? If you re most concerned about controlling costs, we have billing arrangements that can knock those costs down to very little but there is a trade-off if you were more interested in revenue, if you want $10, $20, $30 million coming in on an insurance claim it’s often times a lot cheaper not to go with an alternative billing rate. But to actually work with us to come up with a plan to recover big amounts of money.
So in closing I would say, we keep in mind the revenues, less expenses, equals net income every time we go into a situation with the client. We want to increase that net income. We want to help the client do that we want to help manage their legal spend but in the same time we want to help them maximize their recovery.