The Economics of Everyday Things - 37. Personal Injury Lawyers

Episode Date: February 19, 2024

If you can make it through three years of law school, you too might end up on a billboard.  Zachary Crockett makes the case. SOURCES:Jason Abraham, managing partner of Hupy & Abraham.Nora Engstrom, professor at Stanford Law School.Kyle Hebenstreit, C.E.O. of Practice Made Perfect. RESOURCES:“Personal Injury Settlement Amounts Examples (2024 Guide),” by Jeffrey Johnson (Forbes Advisor, 2022).“Low Ball: An Insider’s Look at How Some Insurers Can Manipulate Computerized Systems to Broadly Underpay Injury Claims,” by Mark Romano and J. Robert Hunter (Consumer Federation of America, 2012).“A Century of Change in Personal Injury Law,” by Stephen D. Sugarman (UC Berkeley Public Law Research Paper, 2000).Bates v. State Bar of Arizona, in the Supreme Court of Arizona (1977).

The accident came without warning. Now you're injured. What you do next could cost you tens of thousands of dollars. That's William Shatner, one of television's most recognizable actors. He was Captain Kirk in Star Trek. He's won two Emmy Awards. He has a star on the Hollywood Walk of Fame. But in this commercial, he's playing a different role. Spokesman for a personal injury law firm.

Don't risk your family's future. You want more? All the money you deserve? Get it done. Call free right now and tell the insurance company you need business. free right now and tell the insurance company you mean business. In many cities, ads for personal injury lawyers have become a part of the landscape. Attorneys deliver cheesy one-liners in daytime TV spots. Their faces loom over us on billboards and bus stops. They hold up wads of cash and give themselves nicknames like the Hammer and Tarzan the Lawman. These ads might be funny or annoying, but in the personal injury business, they've become a necessity.

If you're going to be successful as a personal injury lawyer on a big time scale in today's market that really is a marketing circus. We have a seven figure budget for sure. For the Freakonomics Radio Network, this is the Economics of Everyday Things. I'm Zachary Krocke. Today, personal injury lawyers. You'd be hard pressed to find a more lawyer-y lawyer than Jason Abraham. My grandfather and father were both lawyers, and I said from a very young age that I wanted to be a lawyer, and I really didn't know what that meant, but I followed that dream.

Today, Abraham is the managing partner of Hupy and Abraham, the largest personal injury law firm in the Midwest. He oversees 11 offices across Wisconsin, Iowa, and Illinois. And over the past 30 years, he and his team have recovered more than a billion dollars in settlements for 70,000 clients. He's the guy people call when they have a slip and fall, a car accident, or a medical malpractice incident. You see all the gamut of stuff, whether it be, you know,

the injuries aren't all that serious or someone dies or loses a leg. It just turns people's life upside down when they have an accident that isn't their fault. I can tell you this, you're not in good hands like the insurance companies want you to think when something happens because their job is to pay you as little as possible. think when something happens because their job is to pay you as little as possible. Americans file around 400,000 personal injury claims a year, and there are 50,000 firms vying for that business. Across the industry, verdicts and settlements from these claims amount to $53 billion in revenue. Most of that money is paid out by insurance companies. There used to be this common perception

that the value of your personal injury cases three times your medical bills. But it's actually a little more secret and a lot more complicated than that. Many insurance companies use a program called Colossus. It contains around 600 codes for different injuries, each with an accompanying monetary value. The program adjusts that value according to a bunch of factors.

Any lost wages, who the claimant's attorney is, how frequently that attorney goes to trial, and then it spits out a number. I don't know what they have on their end and their computers and values, And then it spits out a number. Another factor is what's known as pain and suffering. That's compensation for any emotional hardship a wrongfully injured person might go through. And it tends to be the most nebulous part of any settlement. What they're going to look at is the nature and differences of your injuries. Did you damage five different things in the accident or just one?

How long of a period of time did you go to the doctor? Is it going to be permanent? And then generally how it impacted your life as you were going through treatment. Settlements can range from a few thousand bucks for a soft tissue injury to hundreds of millions of dollars for wrongful death suits. One study found that the average across all personal injury claims is around $31,000. Clients can represent themselves, but those who retain counsel receive significantly more money on average. That's in part because personal injury lawyers have a strong incentive to win. They're usually paid on contingency. The client doesn't pay a retainer up front.

The lawyer only makes money if they win a judgment or settlement. At that point, they might make 33 to 40 percent of the payout. It's a good model for people who don't have the resources to pay for representation out of pocket. And it can also be very lucrative for the lawyers. If you do it well, there's the reward at the end of the day of sizable compensation. But if I'm an hourly billing lawyer, whatever my rate is, that's the most I can possibly earn. But a contingency arrangement also means that when a case flops, Abraham has to eat the cost. I would say maybe five to 10 percent of your cases get dropped for one thing or another, and it could be no insurance, could be bad facts, could be client disappears.

That's just the cost of doing business. There's a stigma that personal injury law is clogged with frivolous lawsuits filed by naive clients. But the contingency model disincentivizes lawyers from picking up cases they can't win. Good lawyers are very selective. Investing your time and your money in a case that is a bogus case is a really bad financial idea. That's Nora Engstrom. She's a professor at Stanford Law School, who was written

extensively about personal injury law. She says that the costs lawyers assume for a client, filing fees, expert witnesses, transcription, travel costs, they can add up fast if a case goes to trial.

In a big case, it's not unusual to have six figures worth of costs and expenses of litigation. But in today's landscape, personal injury trials are rare. 96% of all claims are settled out of court. The mentality is, you know, interact, get a check. Engstrom calls these firms settlement mills. I think of settlement mills as something like a lawyer light.

It's kind of like a lawyer, not entirely, and it's just fast, simple, efficient resolution of claims. By nature, many personal injury firms are high volume, quick turnover businesses. They need new claims to keep the lights on. And that model requires an unrelenting stream of advertising. Most people are tortuously injured once, if at all. It's one-off client situation. And for personal injury lawyers, that means you've got to repeatedly attract

new clients in the door. Everyone's bombarding potential clients with TV commercials, radio commercials, billboards, SEO advertising. It's the wild, wild West out there. That's coming up. There was a time not long ago when lawyers were not allowed to advertise their services. In 1908, the American Bar Association deemed ads to be unethical, and many states banned advertising altogether. It was thought that if lawyers advertised, they wouldn't be professionals,

they would act like commercial actors. There actually are reported cases, for example, lawyers getting in trouble for handing out matchbooks with their law firm names on it, law firms handing out calendars, or even having bold-faced names in the yellow pages. All of these things were problematic according to the bar because they ran afoul of this very strict advertising prohibition. Personal injury lawyers had to rely on more

direct customer outreach. What they did was a lot of ambulance chasing, which is to say walk the halls of the hospital or look for car wrecks in the breakdown lane. The ban on advertising stayed in place for 69 years. But in 1977, everything changed. Two Arizona lawyers were struggling to find clients. They illegally took out an ad, they were sanctioned by the bar, and they decided to fight the case in court.

They challenged it all the way to the US Supreme Court. And the Supreme Court in this 1977 groundbreaking opinion struck down the bar's longstanding prohibition on legal advertising. Bates versus State Bar of Arizona opened the floodgates, especially for personal injury attorneys like Jason Abraham. If the advertising rules didn't change to allow lawyers to advertise on TV, radio, newspaper, and all the other mediums. We'd never have offices throughout the Midwest. We'd never be this big. At a large firm like Hupy and Abraham,

advertising is almost as important as the council itself. Abraham has his own seven-person in-house marketing team. I'm sitting in my studio right now. I see a teleprompter. I see all our TV equipment. I'm on my podcast equipment. in-house marketing team. us on billboards. You'll see us inside the Milwaukee Brewer's Ballpark. Sometimes you'll see us on big trucks. You'll see us at events all around the Midwest for motorcyclists. Abraham's firm spends well into the seven figures on advertising each year. Last year, the largest personal injury firm in the nation, Morgan & Morgan, spent more

than $200 million on ads. This kind of spending has made it very hard for new personal injury firms to break into the business. If you're a brand new player and you want to get in, you're almost going to have to spend three or four times what we're all spending right now to really make a name for yourself. If you're in, you're in. And if you're not in, the cost of admission is just so high. After all, it's not just any firm that can afford to hire William Shatner as their spokesman.

The ad you heard at the beginning of this episode, that's a Hupy and Abraham classic. You start peppering the airways with TV, well, you have William Shatner and it gives the message they must really be successful if they can afford to have William Shatner beyond their commercials. One thing that has to be in every commercial, the firms catchphrase. Tell them you mean business. Tell the insurance company you mean business.

Call Hupy and Abraham. Tell them you mean business. Call Hupy and Abraham. Tell them you mean business." By personal injury law standards, Abraham plays it pretty safe with his ads. That can't be said for others in the industry. Rhyme Wilson, the Texas law, challenge of justice, do process. Do wheelies. Surveys in the legal field have shown that potential clients want their lawyers to be confident and aggressive. They don't care much for friendliness. And that's probably

why the same motifs show up in ads from so many personal injury lawyers. Greedy insurance companies play dirty. Bring it on. I'm Tim Adler, the Texas Hammer. In the land of Kentucky, derelisics. The hammer meets the fight for justice. Blow the hammer Stanley, 459 cash, 459 cash. So who makes all these ads for lawyers anyway? Kyle Hebenstreet, I'm the chief executive officer of PMP.

PMP is short for Practice Made Perfect. They're one of a handful of advertising firms working exclusively with personal injury lawyers. There's probably about five to seven agencies in the United States who do what we do and have been doing it for a long time. PMP works with around 30 firms, with client budgets ranging from $120,000 to $6 million a year. Heben Street is the first to admit that conversion metrics for advertising can be a little loosey-goosey. But going by what can be measured,

the investment in marketing is worth it for most firms. We typically focus on what the average cost per case would look like for our clients. Heaven Street says attracting a $15,000 case would usually cost around $1,000 to $3,000. It's a good investment. Part of the company's strategy is placing ads in areas where workers might have higher on-the-job injury rates.

A billboard by a shipyard, for instance, would be a strategy that we would employ to expand the messaging to that potential target audience. A good lawyer billboard needs to be big, bold, and simple. We find that people specifically with respect to billboards have about two to seven seconds to actually see the imagery and read the copy.

It's like firm name logo and an image. Typically, you're going to want a picture of one of the attorneys in a suit and tie and then, you know, some sort of copy that speaks to accident or injury. Legal advertising firms are also increasingly focused on digital ads. One study found that between 2014 and 2018, the 10 most expensive Google search keywords were all related to personal injury law. Law firms paid as much as $226 per click, over 100 times more than the average keyword.

Nora Engstrom says that all of these ads have democratized access to legal counsel. There was a time when your likelihood of going to a lawyer depended a lot on your wealth and personal circumstance. And rich folks were more likely to go to a lawyer even for personal injuries than poor folks. Rich people knew the secret handshake to find a lawyer and to initiate a lawsuit. We now see, I think, less of a gap between the haves and the have-nots when it comes to the initiation of claims.

But that doesn't mean everyone loves all those ads. In a Florida Bar Association survey, 85% of respondents said they thought ads harmed the public perception of lawyers. Lawyers tend to be really down on attorney advertising and say that this has eroded the profession, it's tarnished the dignity of the profession. Jason Abraham chalks this up to envy. I think that's in some ways competitive jealousy because they understand that the personal

injury lawyers have the ability to be very successful, which means make a lot of money. He understands the reputational risks he's taking when he runs a silly ad on TV. But like most lawyers, he doesn't need to be loved. I don't have any problems with people making fun of what I do or calling me an ambulance chaser. And if it makes somebody laugh and it can be sensationalized, at the end of the day, that's fine with me. But I'll tell you this, if someone has an accident, we're the ones they're calling. For the economics of everyday things, I'm Zachary Crockett.

This episode was produced by Sarah Lilly and mixed by Jeremy Johnston. We had help from Julie Canfer and Daniel Moritz Rapson. Just because I have a professional Juris Doctor degree, that doesn't make me put my pants on any differently than someone else. on any differently than someone else. The Freakonomics Radio Network, the hidden side of everything.