Steve Jobs famously surrounded himself and his colleagues at Apple with a “Reality Distortion Field.” From within the reality-free vortex, designers, innovators and futurologists dared to think the impossible, and the products which spun out, for some, approached the sublime. Jobs et al were, arguably, proof of Alan Kay’s aphorism that the best way to predict the future is to invent it.

For visionaries, then, reality is mundane, dull, and reactionary. Reality stifles innovation. A similar attitude exists in the UK mediation community where independent minds are free to think great thoughts from lofty heights above the ignorant currents of the market. The trouble is, mediation isn’t selling like the iPad. It isn’t even selling like litigation.

With this in mind, I learned a great deal from a week of meetings with senior figures in the London insurance market. On the question of what they want and expect from mediators, they were admirably clear and consistent, with underwriters, brokers and claims handlers speaking with one voice.

Before detailing their responses, it’s worth considering the opportunity for mediation in the current market. The character and composition of the Lloyd’s market has changed since the early 1990s recession.  Institutional investors have replaced Lloyd’s “Names” who previously invested private capital and had unlimited liability. The market is now more “active”, more stable, more professional and more commercial. Whereas an estimated 60% of market activity related to run-off claims (or discontinued policies) 20 years ago, such claims are a modest and decreasing activity. With on-going commercial relationships now predominating, many acknowledge that the golden age for insurance litigators is over.

For mediation, then, the impact is twofold: first, the overall volume of litigation is down (particularly between market players, and especially in reinsurance disputes), and secondly, there is a greater incentive to mediate to preserve commercial relationships.

The result is that ADR in various forms is widely and flexibly used. It is also worth noting that an estimated 80% of business written in Lloyds is US insurance, and most claims handlers have more experience of mediation in the US than in the UK. This fact may colour the stylistic observations which follow.

Observations about ADR

Mediation

Underwriters are already significant users of mediation, particularly in the US. Most described themselves as “reasonably sophisticated” about the process. Many noted that the number of claims they are prepared to litigate over time is reducing. On larger claims, some noted external lawyers remain resistant to the process, only advising suitability after several years of litigation. At the lower value, higher volume end of the market, underwriters noted that lawyers have become much more settlement-minded.

Users spoke to three principal benefits of mediation: 1) capping of risk 2) flexibility of outcome and 3) savings on legal costs. Benefits of unsettled mediations in narrowing issues, and increasing the likelihood of settlement were also noted.

Nevertheless, users articulated several objections, viz:

1) A dislike of two-day mediations – the first day often being wasted on technical details of limited bearing on the final outcome.

2) That the process depends on some degree of co-operation from the other side, which isn’t always forthcoming. Proposing mediation without appearing weak was still problematic.

3) Savings on legal costs tended to be minimal, as mediation only “works” when used close to trial and 85% of the costs have already been incurred.

4) Mediation is not always thought necessary, as sophisticated parties can settle disputes without third-party intervention.

5) The process often lacks teeth: see “Mediators” paragraph below.

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Tags: London insurance market, Mediation, Steve Jobs