Ppls

Question 1: How does PPLS create value for its customers, and what are the critical risks it has to manage well? What is your assessment of how well PPLS is performing?

PPLS sells legal expense insurance to its customers creating value to customers by:

* Providing high quality services: PPLS is hiring highly rated legal firms (typically rated AV by Martindale-Hubbell – the highest rating). Hence, it is guaranteeing a high quality service to its customers.

* Lowering hourly costs to customers: Under the closed panel memberships, PPLS contracted with one large highly rated legal firm in its each of its major markets. The attorneys are paid a fixed monthly fee on a per capita basis to provide services to plan members. Since PPLS is negotiating on behalf of a large pool of customers, it is more likely to receive lower fees than what an individual would receive alone. PPLS will retain some of these scale benefits and will pass-through some of them to their customers.

* Lowering overall costs to customers: Typically attorneys are paid on an hourly basis. Hence an attorney has an incentive to spend more hours a customer case ultimately increasing the bill for the customer. However:

* Under the PPLS closed panel scheme, the legal firm is paid a fixed monthly fee. Hence the attorneys have an incentive to speed-up the process when dealing with a customer ultimately resulting in lower costs for the customer.

* Under the PPLS open panel scheme, PPLS will monitor the legal firm to make sure the payment schedule reflects a “usual, reasonable and customary fees” for a particular agency. Hence independent attorney has an incentive to manage the hours billed to the customer.

* Increasing speed of execution: Since PPLS is eliminating the attorney incentive to spend more time on a case; it is increasing the speed of the legal process.

Insurance is a risk pooling business. As long as PPLS attracts a diverse pool of customers it will maintain an...