Risk Management - Does It Really Help?

   Many of us are basically skeptics at heart and we like to test the proverbial waters of new ideas before diving in head first. Empirically, we like to make projections based upon varying assumptions and quantify the results of different permutations (whoa, I really have been hanging around actuaries too long) before being sold on the merits of a new approach. Such is the way many law firms view risk management techniques.

   If risk management ideas seem "warm and fuzzy" it is probably because you cognitively recognize their apparent wisdom as common sense, but struggle with quantifying the scope and effectiveness of the various proposed techniques. The difficulty rests with the fact that we do not have a "control group" to measure against, as we were taught to use in science experiments. However, we can compare results over a period of time and thereby add validity to the argument.

   Recently a study (Risk Management At Large Law Firms) was conducted by Lou Harris and Associates, Inc. of New York. The survey of approximately 395 of the almost 1100 U.S. law firms which employ 35 or more attorneys, indicated that risk management procedures are employed and that over the past ten years the use of these practices has increased tremendously. Does the use of these procedures translate into reduced professional liability exposures? If so, to what extent?       According to the survey, firms who implement certain risk management procedures can save over $1 million in professional liability claims costs. These procedures include: computerized database of clients for conflicts screening (97%), second partner review of decisions to sue for fees (92%), a designated risk management partner or committee, (90%), standard client intake form (89%), and computerized calendaring.

   From all of the survey data it is clear that focusing on risk management pays off. The survey also showed the largest claims arose from the practice areas of litigation and business/corporate law. It is not surprising that this tracks with OAMIC's experience.

   Since Oklahoma is primarily comprised of small firms, the question arises, are the survey results applicable to small firms?  Without a doubt, implementation of the same procedures and techniques correlates to improved results.

   We have been able to achieve fantastic financial results over the past few years. However, as we recognize trends such as broadening exposures for lawyers and claims of increasingly complex and sophisticated natures, the implementation of risk management procedures is necessary to maintain close to similar results.