28 November 2013Cayman analysis

Back in the driver’s seat

Almost everyone is familiar with e-bidding, whether or not they know it. The pleasure and ease of Internet shopping is well documented. Now LSG has brought that same pleasure and ease to the world of professional services.

As Gary R Markham, founder chief executive of LSG, explains, “Our system is effectively one of e-procurement. You can think about how things move around the world in containers—you buy something online in China and it’s sent to your mailbox four days later. Those are all procurement flows. It’s a concept which has been applied to parts of the insurance industry and other trade flows, but has typically excluded professional services.”

LSG, with its Procure-Manage-Pay (PMP) system, is out to change that. The system allows companies looking for professional services to source them online and encourages service providers to bid for your business.

Markham says, “Our tool was originally built for legal services alone, but we began to expand it. Attorneys, loss adjusters, expert witnesses, field investigators, court reporters, forensic accountants—our system can be used to source all of these professionals.”

The system is offered as a bolt-on for new and existing customers. LSG is able to offer its clients a menu-based approach to its e-bidding capabilities. This allows captives to take a selective approach and tailor LSG’s offering to suit their specific needs.

“There is a lot more utility in this new system and although this is a great fit for insurers, it is applicable to a host of business sectors,” Markham explains. “The system allows you to bid for everything from paper clips to attorneys. Anything outside the organisation—any external costs that you are bearing to fulfil the completion of a project—should be able to go through the same process. Same software, same workflow, all done electronically.”

A captive collaboration

LSG’s system is a perfect fit for captives, Markham says, due to the fragmented nature of how captives are set up and the number of players involved in a captive arrangement. This structure can make it hard to keep tabs on service providers and how claims are being handled.

“You can have a captive with 20 owners involved. When handling claims, captives will often use a third party administrator who will process claims and report back. This erodes the captive’s reserves against their book of claims. They tend to rely heavily on the reports that come back in terms of assessing the effectiveness of professional services in settling claims. And when I say ‘the effectiveness’, I mean ‘the lack of effectiveness’,” he says.

Captives are often left in the dark when it comes to how their claims are being handled. LSG’s new tool combats that, putting captive owners and managers back in the driver’s seat.

“Captives aren’t unique in wanting solutions to the difficulties they face, but they are likely to receive less direct feedback about what’s happening on the claims side of the house than they would if they were a domestic insurance carrier in the US,” says Markham.

LSG also offers Panel Partnership, an online one-stop shop for vendor information. With 80,000 vendors already signed up—offering services across 74 countries—Panel Partnership is set to be a robust procurement tool.

The panel will contain pre-qualified third party providers to whom captives can turn to source business, with the rest of the qualification then carried out by the client. And it is through this system that PMP members will be able to source their vendor expertise.

“This kind of procurement is a particularly good fit for captives due to the level of outsourced work. By their very nature the distances between the parent and where the captive resides can be significant, so there is a propensity to outsource and a corresponding reliance on third party providers.

“We believe that having those types of relationships managed through a PMP system is the way to go because it puts all the visibility and a fair level of control at the desktop of the captive,” says Markham. “At the moment a lot of that is communicated via spread sheets, reports and word of mouth, but having all the vendors, cases, bills and budgets tracked and interconnected in one place makes for a valuable solution for captives and others with similar third party needs.”

Case study: ACE Group

ACE Group is one of the world’s largest multiline property and casualty insurers. In 2005, ACE met with LSG with an eye towards improving management of their global litigation and expert spend programme. ACE’s business issues included cost visibility across its operations in 53 countries, budget tracking, billing guideline compliance and validation, establishing an easy invoice review and approval process, and moving all financial reporting on to a single platform.

LSG’s solutions were tailored specifically to ACE’s needs. To tackle cost visibility, external counsel and other experts across the globe were invited to join Advocator System, which allows designated ACE client executives to approve their rates and fixed expenses prior to invoice submission. These controls ensure that ACE keeps control of its experts.

The programme also allowed ACE to track the request life of claims or phased budgets which, as invoices are submitted, sends email reminders to improve collaboration. LSG also provided ACE with an e-billing solution which automatically validates key parts of the invoice. Rather than reviewing paper invoices, ACE is now able to review, reduce and/or reject an invoice on a single screen. Likewise, ACE is able to obtain real time reports on a variety of key financial and performance metrics on its internal and external counsel reports.

Since 2008, ACE’s claims department has used Advocator System to assign matters, request and track budgets, and renew and approve electronic validated invoices. In the first year the system generated guideline non-compliances (ie, compliance savings) averaging 6.1 percent of the total submitted.

Gary R Markham is chief executive at LSG. He can be contacted at: