AIG mulls reverse auction in cost-cutting Emea panel review
AIG is considering a reverse auction for law firms pitching to win places on part of its legal panel amid a review of its Emea advisers.
Chris Newby
The insurance giant has kicked off a revamp of its regional roster expected to result in a reduction in the number of firms appointed and a change to its structure.
A spokesperson for the company confirmed that the reverse auction was under consideration, with its application understood to be confined to non-disease personal injury work.
The procurement style sees the company issuing the tender request bids from firms at a decreasing fee level in a bid to push down prices by encouraging undercutting.
The decision is likely to be related to the increased costs of using the road traffic accident (RTA) claims portal. The Ministry of Justice is set to introduce fixed costs of £800 for all RTA claims worth between £10,000 and £25,000, as well as between £900 and £1,600 for employer and public liability claims (14 March 2013).
In a statement, the insurer said: “AIG Emea has begun a review of the legal services it engages both for corporate and claims work. The objective is to create a more efficient and co-ordinated way of working that meets the requirements of AIG’s operational structure in the Emea region.
“It involves consideration of new ways of engaging with its panel of external lawyers including the reverse auction process. The review is ongoing with completion expected in the summer.”
AIG Emea general counsel Chris Newby, a former Norton Rose associate, started the review early this year, addressing a range of practices covering transactions, litigation and claims.
The Lawyer reported in 2011 that AIG was planning to introduce a panel in Europe, where its business was known at the time as Chartis (24 October 2011). It returned to the AIG brand last year.
It is unclear whether the company took a decision to push the procurement process back from the original plan to launch the panel in 2012, but the latest review is connected to the fact that AIG merged its European and UK businesses in December last year, transforming it into more of a Continent-wide operation.
Current panel members are thought to include DAC Beachcroft, Clyde & Co, CMS Cameron McKenna, Freshfields Bruckhaus Deringer, Kennedys and Norton Rose.
A City insurance partner commented: “I think there’s inevitably a desire to drive the panel size smaller. It’s implicit in what they said, that they want to get some handle on spend. It’s a long process.
“They do [have a number of sub-panels] at the moment and I think the idea behind this is that there will be a single [panel]. I don’t know what AIG’s thinking is, but certainly all insurers see the idea of leveraging their panel to get as much from the firms as they can.”
Readers' comments (5)
Market Dojo | 15-Mar-2013 9:05 am
Very interesting. We have seen quite an interest from firms wishing to use the reverse auction as a means of negotiating legal services. There is quite a bit of resistance in the market, mostly from the legal firms themselves, which is inevitable. However, reverse auctions are just the negotiation piece. So long as you can accurately define the service levels and quality of the legal team, using CVs/Resumes, robust service terms, perhaps even interviewing the team from each bidding company to ensure their credibility, then price is just the final consideration.
Unsuitable or offensive? Report this comment
Mr Cheerful | 15-Mar-2013 10:31 am
Those defendant firms who have been cheerfully putting the boot into the plaintiff companies are about to get a nasty shock...
Unsuitable or offensive? Report this comment
Anonymous | 15-Mar-2013 11:52 am
The race to the bottom can reduce legal spend, but in many ways it produces perverse incentives.
Until recently I was at one of the panel firms mentioned above that had a 'volume' defendant team for AIG as well as other well known insurers.
The agreed rates were so low that it was seriously unprofitable to do anything other than settle the claims at an inflated level.
Further as the adage goes 'pay peanuts' . . . and the quality of the staff engaged in this work was shocking, with ignorance, inability and error writ large.
No amount of supervision (at least that affordable within the financial model) can cope with the risks of poorly educated, poorly trained 'case handlers' with a case holding of 180 files.
Offering a service to insurers in this way may be attractive as a 'loss leader' but the damage to the firm's reputation when it has to write regular cheques for 'leakage' (a nicer new age phrase inferring negligence) can have a seriously corrosive affect on the standing of the firm: why should an insurer send you large loss and catastrophic loss instructions when your firm can't nadle a low value rear end shunt?
Unsuitable or offensive? Report this comment
Anonymous | 15-Mar-2013 1:31 pm
Good points anonymous - where did the next step in your career take you?
Unsuitable or offensive? Report this comment
Anonymous | 15-Mar-2013 4:21 pm
Not saying where but I'm glad I went.
But I can say this, the situation in my former firm is far from unique.
Fees can be as low as £250 per file (and I've even heard that in one contract that's to a hearing including disbursements!) or if the rumours are to be believed in one case <£100.
I'm sure the claimant community knows which teams at which firms are distinctly Simian and act accordingly; thereby exacerbating the problem.
Unsuitable or offensive? Report this comment