AIG's Asia GCs demand more from their external advisers than straight legal advice – to win work from the insurance giant, firms need to step in and help with its mushrooming compliance burden, says Elizabeth Broomhall

When he's not busy writing novels, Peter Gregoire is trying to come up with new ways to boost efficiency within AIG's Hong Kong legal team. 

As GC for the insurance giant there, the author of Article 109 – a legal thriller which reached number one on Dymocks' bestseller list earlier this year – manages AIG's legal affairs in Hong Kong and Macau, and makes suggestions for change to Pamela Yeo, AIG's regional GC based in Singapore.

Gregoire's day job is probably not as hectic as that of the main character in Article 109, a young solicitor investigating the suicide of a former colleague who uncovers a conspiracy to cause chaos on the financial markets. But the ex-Barlow Lyde & Gilbert lawyer is nevertheless one of the busiest GCs in the region.

Yeo has her hands full, too. Overseeing a team of 50 lawyers across the Asia-Pacific territories, she is responsible for juggling regional panel reviews with appointments of specialist and country counsel, analysing how best to reduce legal spend in the region, while seeking feedback from her 13 team leaders on individual country developments and new legislation. 

Like many GCs, she has made it a priority to get more out of external lawyers and to handle as much legal work in-house as possible. In recent months, AIG has hired lawyers from private practice and also uses seconded lawyers from associated firms to help manage her internal workload.

"We handle almost everything in-house except for projects and contentious work," says Yeo. "I'd say about 80%-90% of the corporate legal work is handled in-house." 

The AIG legal team is structured differently from its counterparts in other sectors given the nature of the business. As a global insurer, it handles a mix of day-to-day corporate legal work and big company projects, as well as routine claims work and related litigation. 

For now, claims work is managed by a dedicated department, which manages its own Asia-Pacific panel of law firms. The in-house legal team handles the corporate work, helped by a separate panel. 

On the corporate side, there is a GC and a team of one to five lawyers in each country where AIG operates. In Japan and Singapore, the teams have additional specialist counsel dedicated to commercial, consumer, governance and regulatory work. The Asia panels are broken down by country, with AIG operating in Hong Kong, China, Taiwan, Japan, South Korea, Singapore, Indonesia, Malaysia, Vietnam, Thailand, the Philippines, Australia and New Zealand.

Speaking about the work managed in-house, Yeo says her lawyers handle anything from drafting and preparing insurance policies to advising on the distribution of insurance and how it can be done more efficiently.

Gregoire (pictured) adds that much of the daily grind also involves dealing with regulators; typically when seeking approval for corporate restructurings or outsourcing. Other work includes non-claims litigation and insurance claims that could have a reputational risk element. 

Among the biggest achievements of the Asian in-house legal team in recent years was the company's rebranding project, where its name was changed from Chartis to AIG, and the restructuring of the group's US branches into local subsidiary insurance operations.

It all sounds a far cry from his book's hero tackling financial conspiracies, but Gregoire – a former anti-fraud specialist – says: "This was quite a large challenge for all of us across the region. In legal terms, a branch is a completely different structure from a subsidiary.

"It needs a board of directors who need to be 'fit and proper' and approved by the regulators. It also needs an entire corporate governance structure with audit committees and risk committees. It also needs paid-up share capital, and it is a stand-alone legal entity. 

"To accomplish the transformation, we needed to set up the subsidiaries, get them licensed by the regulators and then transfer all the businesses (policies, reinsurances and employment contracts) across from the branches and communicate the change with our policyholders and business partners."

External counsel is often appointed for these kinds of projects, Yeo says, in addition to M&A work or when AIG needs advice on incoming laws expected to affect the wider region. They are also used for contentious work and litigated claims, and if there is a case requiring special attention from a firm with expertise in a certain area. 

Typically, the company only uses firms from its pre-appointed panels, but does have the option of selecting a non-panel outfit if specific expertise is required and the GCs have obtained approval from the US headquarters in New York. 

Asked why AIG uses panels for external lawyers when so many companies in Asia prefer a less formal approach, they say it is a good way of improving efficiency and allowing them to drive bargains over fees. 

"Panels are useful when you have the kind of business where you regularly have to instruct outside lawyers," says Gregoire. "In insurance, where you're handling claims under insurance policies, you tend to get a share of litigated claims, which means having to instruct a law firm to go on record. 

"If you have a panel, you know who to instruct and you get consistency of product. So insurance, on the claims side at least, is a business that lends itself more to having a panel structure."  

He adds that using a panel is also a good way for companies to control costs: "It means we can limit the amount of work we send out to lawyers by clearly identifying those situations where we have to. 

"Also, when you have a panel you can leverage synergies to make sure the fees are as competitive as possible. We can say, for example, we will send you all of this work if we have it, but in return we want you to bill us at a lower hourly rate or on a fixed fee basis."

AIG, an insurance behemoth with a $69bn (£44bn) market value, is equally driven by the need for secure the best legal advice available, Gregoire continues. "Hong Kong is also a saturated market where lawyers are concerned, so you need a panel to narrow down your choice. 

"It's also quite a disparate legal market in terms of quality – so having a panel means that you've already gone through the due diligence of identifying who are the technically good lawyers so you can just farm out the instructions as and when you need to and without having to negotiate fee structures because you have already done it."

Yeo says AIG is engaged in a review of its Asia-Pacific panels for both claims and corporate legal work. As well as looking at law firms' performance, how often they have been used and the strength of the partners, it is also seeking help with regulatory and compliance matters as the number of probes into global companies continues to mushroom. 

"Law firms have asked us what we're looking for and what support we need," Yeo says. "What we're looking for now is support in terms of governance, so [that applies to] the training of directors. 

"We would not just need law firms, but also risk management specialists, people who have insurance or a regulatory background, and finance specialists to come in and train our directors. This is one big area of need which I've mentioned to a few of the prominent law firms in the region."

Gregoire adds that the firm will also seek additional benefits such as secondments and alternative fee arrangements to help AIG handle more work internally and reduce its legal budget. He says: "Overall, we're looking to see if we can use outside law firms in a more efficient manner, which may be done, for example, by leveraging synergies across countries. 

"Each country has its own objectives when it's looking at reviewing law firms, so for example in Hong Kong, one of the things that we would be looking at specifically on the claims panel is to explore different invoicing and fee payment structures. 

"This is particularly the case for employers' compensation claims work, where we will be looking at fixed fees, capped fees and staged-fee arrangements and to see if we can move away from the hourly billing model. 

"These types of arrangements are appropriate for work which is high volume, low complex. So that would include motor claims; any kind of personal injury claims."

The length of time firms will stay on the panels remains uncertain, Yeo and Gregoire say, but in the past they have been reviewed every two years. The legal team is still in the process of putting together the requests for information, but timing is less important than getting it right. In the longer term, the company would also like to merge the claims and corporate panels to try to make more cost savings. 

Nevertheless, the biggest challenge is not going to be the appointment of panels, according to the two GCs. For the corporate legal team at least, the main difficulty will be to manage new regulation for insurers, particularly as increasing numbers of countries and regulators in Asia look to align their core insurance principles with those of the voluntary member group, the International Association of Insurance Supervisors (IAIS). 

"Different countries are doing this at different speeds. Singapore is doing it quite rapidly and they're quite aligned with these principles, but Hong Kong has still got a way to go," says Yeo.

"We're certainly going to see a lot of changes on the insurance side over the next few years. We've seen the outsourcing guideline come into force January this year; we're going to see the new Independent Insurance Authority come in, as well as risk-based capital. It's all interesting stuff. 

"There are a lot of changes coming. The challenge for all the general counsels across the region is going to be trying to keep pace."

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