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Captives are formed to give organizations greater control over risk financing, claims and insurance costs. That control can weaken once a claim enters litigation and responsibility is divided among the captive owner, captive manager, third-party administrator and defense counsel.
Higher legal spending is not necessarily a sign of poor performance. Concern arises when management cannot determine why costs are increasing, whether legal activity is advancing the claim or whether the strategy remains economically justified.
Key Takeaways
- Rising liability costs make litigation oversight more important.
- Invoice review alone does not measure legal effectiveness.
- Targeted reviews can identify leakage and improve claim outcomes.
Why Legal-Spend Oversight Matters
These findings reflect broader P&C and casualty-claims experience rather than captive-only results. They remain relevant because retained claim costs can flow more directly into a captive's financial results and the parent organization's total cost of risk.
EY claims assessments have identified potential leakage equal to approximately 7%–14% of total claims spending.
Where Legal-Spend Problems Can Develop
Legal-spend problems often arise because responsibility is divided among the captive owner, captive manager, TPA and defense counsel. Legal invoices document work performed, but they do not necessarily show whether the work reduced exposure, advanced settlement or improved the likely outcome.
Aggregate reporting can also hide problem files. A small number of claims may account for a disproportionate share of expense, while similar claims produce materially different costs because of venue, staffing, strategy or settlement timing. Signs that closer review may be needed include:
- legal expense rising without meaningful progress;
- repeated budget overruns or prolonged activity without a clear strategy;
- late reserve increases after substantial legal work; and
- materially different defense costs for similar claims.
Strengthening Litigation Oversight
Invoice review remains an important control because it can identify duplicate charges, inappropriate staffing, vague entries and guideline exceptions. Captive owners should evaluate legal spending alongside claim exposure, reserve movement, settlement opportunities and progress toward resolution. A targeted review can focus on:
- high-cost or long-running claims;
- significant reserve changes;
- matters approaching trial;
- repeated budget or billing exceptions; and
- files where the TPA and defense counsel may not be working from the same strategy.
How Alan Gray Can Help
Alan Gray can help captive owners evaluate legal spending and litigation performance through:
- claim-file and litigation-management reviews;
- legal-bill and billing-guideline assessments;
- reserve and settlement-strategy evaluation;
- TPA and defense-counsel performance analysis; and
- identification of leakage, recurring issues and high-risk files.
The review can be tailored to selected high-exposure files, recurring performance concerns or a broader captive claims portfolio.
Conclusion
Captives are intended to provide greater control over retained risk. Maintaining that control requires more than reviewing invoices and monitoring total expense. It requires a clear connection among legal activity, claim strategy, reserves and results.
Citations
- Curcio, Michael. "Property and Casualty Insurers Tackle Indemnity in Litigated Claims." EY, 5 May 2025. Accessed 6 Aug. 2026.
- Lynch, Jim, and William Nibbelin. "Increasing Inflation on Liability Insurance—Impact as of Year-End 2024." CAS Forum, Casualty Actuarial Society, Nov. 2025. Accessed 6 Aug. 2026.
- Swiss Re Institute. "Litigation Costs Drive US Liability Claims by 57% over Past Decade." Swiss Re, 7 Sept. 2024. Accessed 6 Aug. 2026.
- Swiss Re. "The State of the Reinsurance US Liability Market." Swiss Re, 15 July 2024. Accessed 6 Aug. 2026.
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