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Regulation and Compliance

An Insurer's Framework To Hire outside Counsel

Aaron Lunt | May 11, 2018

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There are a variety of ways organization's use outside counsel. Almost every organization, in one form or another, must leverage external, legal resources to effectively navigate the myriad of laws and regulations that govern any industry, but particularly the insurance industry.

As insurance is regulated at the state level, plus federal and international influences, there is simply too much to keep track of, which magnifies the need for outside counsel. This article proposes a framework for when to select outside counsel, primarily when evaluating regulatory compliance.

The following three-pronged framework should be considered.

Capacity Management

Depending on the complexity of the organization, oftentimes, lawyers have seasonality to their work, which ebbs and flows. Since in-house counsel is traditionally a cost center for most organizations, in contrast to revenue producing, there's ongoing pressure to minimize overhead expenses. Most legal departments, to put it quite simply, are understaffed for this very reason.

Before determining whether outside counsel is needed to manage the ebbs and flows of work, the first thing is to look at your capacity model. Where do you anticipate upticks in work and in what areas? Lining up law firms before a need arises is a prudent practice to ensure engagement letters are finalized and all conflicts are cleared, so that when a need arises, the administrative optics are already finalized. This will enable quicker turnaround to limit disruption to your business and clients.

To illustrate, the legal department for a regional insurer might only have a single regulatory attorney who helps with compliance, among other areas. The typical workday would provide daily guidance to the various business units on a variety of matters, including deal structures, product development, producer/adjuster licensing counsel, and others. However, if the insurer has a strategic objective to enter a new line of business, there is a significant need to understand the legal environment before entry. The single attorney might not have the capacity to perform this due diligence and research without disruption to his or her day-to-day responsibilities. Selecting outside counsel to perform this guidance may be prudent to ensure business continues without disruption, but strategic planning and development can ensue. Yes, there's a cost, but it is usually a one-time cost until program launch.


There are so many laws that govern insurance, but there are many other areas of law that every organization must follow. These could be local, state, federal, or international laws, depending on the markets of operation. To illustrate, the following are a few additional areas for consideration.

  • Human resource laws
  • Data privacy and cyber-security laws
  • Traditional insurance laws (property and casualty, life and health)
  • Environmental laws
  • Antibribery laws
  • Tax laws

Within each category, there's a parade of specialized niches that can be both complex and nuanced.

Another significant reason to outsource legal work is when an insurer doesn't have the internal, specialized knowledge on a particular area. It simply isn't cost-effective to have internal resources that are competent in every area of law that may impact an insurer. For example, data privacy is a significant issue, and many new laws and regulations are emerging that direct how to safeguard an individual's information. An in-house attorney may have a working knowledge of these laws, but when a company is assessing how to effectively transmit and store customer data that is subject to privacy protection, there may be a need for a specialized privacy attorney. Fines, penalties, reputational risk, and other influences can be catastrophic to an insurer if they don't comply with certain laws and regulations. The utilization of a specialized attorney will help ensure the organization can minimize these risks.

Political or Business Reasons

Inevitably, there are situations where an insurance company is in disagreement with a regulator over a matter. The disagreement could be triggered by a market conduct exam, filing objection, attorney general action, or some other variance. When these confrontational issues emerge, it is important to assess whether outside counsel is appropriate. The benefits often remove the emotionality from the conversation, as in-house attorneys can be emotionally, financially, and intellectually connected to their employer, which may cloud judgment. Outside counsel can provide an unemotional, objective balance to ensure sound, reasoned decisions are being made to find a palatable outcome.

In addition, an insurance company, due to an internal assessment or other discovery, may identify a noncompliant practice and wonder how best to proceed to ensure compliance, limit customer disruption, and mitigate costs. Rather than the insurance entity reaching out to the appropriate regulator for disclosure and guidance, 1 an independent, third-party law firm on a no-names basis can engage the regulator to work through potential violations as well as solutions. At some point, the name of the insurer will need to be revealed, but outside counsel can approach the regulator without disclosing the name of the insurer and brainstorm solutions. Further, before a market practice ensues, a third-party, independent attorney could reach out to obtain clarity (i.e., "permission") on how to comply with a particular area. Regardless, outside counsel can be very helpful to address these types of situations.


Outside counsel is imperative to insurers and will continue to be utilized. In-house attorneys, however, play an important role in determining when to engage outside counsel to best protect their organizations, minimize costs, and preserve the goodwill of their employer. There are many reasons beyond those considered here to engage outside counsel, but this discussion provides a constructive framework to help guide the decision-making process.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.


1 Certain laws and regulations may dictate disclosure requirements and other considerations. Please seek legal counsel for specific guidance.