What’s on Insurers’ Minds for Law Firms?

While 2020/21 saw law firms juggling competing needs to serve clients, in 2022 there has been a clear movement towards firms placing renewed focus on their people.

This was a key theme from a recent Travelers Europe’s podcast on how insurers perceive the legal sector right now. Sharon Glynn interviewed colleagues James Kerr and James Graham about the risks law firms are facing – and how they can improve their ability to manage them. For firms, setting the right tone through supervision and ensuring people are working in appropriate roles will be important as they adjust to hybrid working practices whilst managing high volumes of work.

“More work means more exposure and more risk,” Kerr said. “So, we query whether the high levels of activity are sustainable and conducted in a risk-aware way. Resourcing is a key consideration. Are law firms tracking things other than billable hours and profitability? For example, are they tracking utilisation and making sure it’s at sustainable levels? Do firms have the right qualified people to work on particular tasks, especially if they are developing new specialisms? A key challenge in the ‘war for talent’ is making sure firms have quality individuals to provide the quality advice that clients have come to know and expect from their legal service providers.”

The rise of hybrid working and its effect on firm culture has also brought new risks to the surface that insurers must assess this.

“We’re interested in how staff are supervised and about how firms are managing continuous professional development,” said Graham. “Especially for junior staff who in the past may have been seated next to partners and now are home, there is less learning by osmosis. It’s also more difficult to identify individuals who are struggling with increased workloads. There are fewer ‘water-cooler’ conversations to check up on people and this can affect the culture. We want to make sure culture is maintained in a hybrid environment.”

New world, new risks

The pandemic has accelerated the need for heightened risk management in a range of ways within law firms.

• The move to hybrid work and accompanying adoption of remote processes have made technology oversight a more important focus, with more firms expanding their in-house IT expertise.
• Real-life reminders of the climate crisis are making environmental, social and corporate governance (ESG) standards a key priority.
• The need to make law firms places in which talented people want to work is also making diversity & inclusion (D&I) initiatives a must-have aspect of a firm’s culture.

Going forward, firms will need to manage these risks in ways that also accommodate their employees’ preferred ways of working. The pandemic has given employees two years in which to re-evaluate what they want from their careers and work environments. At a time when talent is in high demand and working away from the office has made people less loyal to their employers, employees have greater power to ask for what they desire – or to find it with new employers.

Firms must foster healthy work environments to encourage talented employees to stay. It’s well known that there is work to be done within the sector to support mental wellbeing. For example, LawCare’s recent Life in the Law study found that 69% of legal professionals have experienced mental ill health. This makes for a high-risk environment that can generate claims – and insurers are working with law firms to change that.

“As insurers, we ask questions about staff and supervision, so we know a firm’s employees are given the opportunity to work at their best in places of psychological safety, where they feel safe speaking up if they’re concerned about something,” Glynn said. “Healthy staff, a supported workplace and a good culture equal a good risk profile and therefore a good risk to insurers.”