A Lean Lens on Legal Bill Review: Keeping the Insured at The Center

For over a decade, I helped build the legal e-billing and review industry. I sat across the table from vice presidents of claims at major carriers, making the case that systematic invoice auditing was a fiduciary imperative. The logic seemed airtight: insurers spend billions annually on outside counsel, billing abuses exist and disciplined review protects the premium pool.

Then I discovered Lean—not as a buzzword, but as the Toyota Production System principles articulated by James Womack and Daniel Jones. And somewhere between “Define Value” and “Map the Value Stream,” an uncomfortable question surfaced: Who, exactly, is the customer in legal bill review?

The answer I had assumed—the insurance company, the claims fund, the shareholders—suddenly seemed incomplete. The true customer is the insured. The person who bought a policy expecting that if something went wrong, they would be defended. The business owner facing a slip-and-fall lawsuit. The contractor named in a construction defect claim. The professional staring down a malpractice action.

These are the people the system is supposed to serve. And when I examined legal bill review through their eyes, much of what I had helped build started to look less like value creation and more like distraction from what actually matters to them.

What the Insured Actually Wants

The policyholder with a lawsuit pending doesn’t care about billing increments or task code compliance. They want to know: Is someone competent fighting for me? Will this be resolved reasonably? Can I get back to my life or my business?

They want their lawyer focused on the case, not on documenting time entries to survive an audit. They want their adjuster thinking about strategy and resolution, not reviewing invoices line by line. They want the carrier and defense counsel working as a team on their behalf, not locked in a low-grade billing conflict that siphons attention from the actual dispute.

Between 2018 and 2023, litigation management costs for the combined property/casualty industry increased by 19%, bringing total litigation expenses to an estimated $24 billion, according to AM Best Financial reports. At typical review fees of 1% to 2% of managed spend, this represents a $240 to $480 million annual market for legal bill review vendors—an industry with a direct financial interest in the continued growth of the very expenses it purports to control.

How the Insured Gets Lost

Legal bill review emerged as a reasonable response to cost pressures. Vendors charge the roughly 1% to 2% of managed spend to audit invoices and identify savings, which are reported to be in the range of 5% to 15%. The arithmetic appears favorable for carriers.

But we should ask a different question: What does this process look like from the insured’s perspective?

Their defense attorney now spends meaningful time crafting invoice narratives designed to survive algorithmic scrutiny—time not spent on their case. When a bill is reduced or rejected, their attorney may appeal, spending more hours on administrative process—again, not on their case. Their claims adjuster, who should be their advocate and strategic partner, instead spends time in their week reviewing billing details rather than managing the claim toward resolution.

Meanwhile, the relationship between carrier and defense counsel—the partnership that should be laser-focused on the insured’s interests—often accumulates friction with every disputed invoice. Trust erodes. Communication becomes guarded. The collaborative energy that produces the best outcomes gets diverted into an adversarial side process the insured never asked for and would never pay for.

The American Bar Association recognized this tension in Formal Opinion 01-421, concluding that lawyers must not permit compliance with insurer billing guidelines to impair their independent professional judgment. When an auditor determines that legal research was “excessive” or that a second attorney at a deposition was “unnecessary,” they are second-guessing strategic decisions that directly affect the insured’s defense. The insured didn’t buy a policy hoping their carrier would override their lawyer’s judgment to save a few hundred dollars.

Redefining Value Around the Insured

Lean thinking offers a powerful reframe: any activity the customer would not willingly pay for is waste.

Apply that test rigorously. Would an insured pay for dozens of hours of administrative time disputing whether 0.2 hours for email review was reasonable? Would they pay for appeals processes when a law firm contests a $47 reduction? Would they pay for the relationship friction that diverts their defense team’s attention?

Alternatively, they would pay for excellent legal work, strategic judgment and efficient resolution. They would pay for an adjuster who knows their case deeply and advocates for smart decisions. They would pay for a defense attorney who can focus completely on winning—or resolving favorably—the matter at hand.

From the perspective of the insured the legal bill review process is overhead that does not add value or advance their interests.

Sample Based Review

What would legal spend management look like if we designed it around the insured’s interests rather than around cost control for its own sake?

Sample-based review, not exhaustive audit. Statistical sampling can identify billing patterns and flag outliers without subjecting every invoice to line-item scrutiny. This is how quality control works in industries that have embraced Lean thinking. The insured benefits because their defense team isn’t mired in documentation overhead, and carriers still maintain financial discipline.

Education over enforcement. When sampling reveals issues, the response should be calibration and training, not punitive reductions. Quarterly sessions between claims leadership and panel firms can align expectations and address patterns collaboratively. The insured benefits because their carrier and counsel are working together, not against each other.

Outcome metrics that matter to the insured. Instead of measuring “savings”—which often just measures friction—track what the insured actually cares about: time to resolution, defense effectiveness, and total cost of resolution including administrative overhead. A matter that closes six months faster serves the insured better than one that generates impressive billing reductions but drags on.

Trust calibration based on results. Firms that consistently deliver strong outcomes for insureds earn autonomy. Those that struggle receive support and closer attention. This is how any high-functioning organization manages partnerships—and it keeps the focus where it belongs: on whether the insured is being well-served.

AI as enabler, not enforcer. Artificial intelligence offers the analytical capability to make this approach practical at scale. Rather than deploying artificial intelligence to automate line-item auditing—which simply accelerates the adversarial process—carriers can use it to design statistically valid models for aggregate review, create focused education initiatives, feed relevant data into meaningful and productive metrics, and develop measurement tools for firm performance analysis and management. The technology exists to move from ‘audit everything’ to ‘learn from everything.’ The question is whether we point it toward policing or toward partnership.

The Objection Answered

The predictable objection: “Without audits, firms will take advantage and that ultimately hurts policyholders.”

This deserves a direct response. First, sample-based review still provides detection capability—it simply does so efficiently. Second, the current system’s “savings” often prove illusory when you factor in administrative costs, appeals, relationship damage, and adjuster time diverted from the insured’s actual claim.

But here’s the deeper point: If your default assumption is that defense partners will exploit your insureds unless watched constantly, you have a panel management problem. The solution is better partner selection, clearer expectations, and genuine alignment around the insured’s interests—not surveillance infrastructure that treats everyone as a suspect while the insured waits for their case to move forward.

Returning to First Principles

The insurance promise is simple: If something goes wrong, we will be there. For liability coverage, that means providing a defense—competent counsel, strategic guidance and resolution of the claim.

The insured who bought that policy trusted that when they needed it, the system would work for them. They didn’t anticipate that a parallel process would emerge—one focused on policing their defenders rather than empowering them.

I helped build the current system because I believed it served policyholders. I now believe we need to revisit that assumption. The fiduciary duty owed insureds isn’t honored by nickel-and-diming their defense counsel. It’s honored by ensuring that every dollar spent, every hour invested, every decision made actually advances their interests.

When the insured is the center of gravity, the right answers about cost, quality and process will follow. That is the least they are owed.

Melaragni is a professor and program director of the pharmaceutical business program at MCPHS University. He previously held senior management roles at Hewlett-Packard, OneBeacon Insurance and Allegient Systems/ Bottomline Technologies.