Joel Hyatt founded Hyatt Legal Services in the late-1970s. It was one of the first law firms in the country to offer transparent fixed fee pricing and it began leveraging actuarial science to price legal services decades before anyone had uttered the words “big data.” Hyatt Legal Services eventually split into two separate companies. The law practices were sold to groups of attorney-providers and Hyatt Legal Plans was spun-off as a stand-alone insurance company which was ultimately sold to MetLife in 1997. At the time of the sale, Hyatt Legal Plans covered roughly 1 million employees under its group legal plans, had gross margins of 50% and an EBITDA that was 38% of revenues.
Given his pioneering work in the legal services industry, it is surprising that Joel Hyatt’s name is rarely mentioned in the current discourse on legal services innovation. In fact, had I not randomly stumbled across the following lecture given by him at the Stanford GSB, it is highly unlikely that I would have ever learned about his story and the great lessons he had to offer:
1. Entrepreneurial opportunities are often created by regulatory changes. – Hyatt Legal Services was founded in the wake of Bates v. State Bar of Arizona.
2. Practices that are common in one industry can be revolutionary in another. – Hyatt Legal Services took a business model that was wide spread in the health care industry and applied it to legal services.
3. A key ingredient to the success of Hyatt Legal Plan’s business model was understanding costs and pricing. Hyatt Legal Plan’s ability to accurately price the provision of legal services increased as the volume of services rendered increased.
Over time, the database proved to be our principal competitive advantage. It became for us, an actuarial science, just like it is in all other insurance businesses.
Now, averages mattered to us! If you do six divorces a year then there is no point in trying to average them. You could get killed on one . . . it could take nine months, a long drawn out horrible affair and the other could take nine days, . . . How are you going to price that?
But if you are doing thousands then it is different. On any individual case we might lose alot of money or make far more than we should have made. But the fact that it cost $675 dollars made everyone happy.
And what we built was a database. It became such a science and it was really true in Hyatt Legal Plans. We could go into a company and survey its workforce by socio-economic characteristics and [based on that analysis] we knew exactly how many wills we would write in a year, we knew exactly how many divorces we would handle, we knew exactly how many home closings . . . we knew the cost, on average!, of doing everyone of those . . .
We priced those plans to a science. We could meet with a company and then two days later give them a quote and we would know what our administrative cost is, our cost of delivery, what our profit was and we never missed after a few years of building the database . . . we were the only people in the world with that database.
So, the pricing became, as I said, an enormous science for us. . . . And then we incented our attorney providers . . . The standard fees we paid them for delivering the service were typically better than what they had computed themselves on average they were getting.
. . .
But the pricing issue was a very important issue . . . In the first few years, we were charging $50 to do a will . . . it took us two years to figure out that we were losing money on every will we were writing. The smart thing we did from day one was capturing the data. It took us quite a while to figure out how to make sense of the data, but over time that was the principal competitive advantage that we had. We were the only people providing legal services in the whole country that actually understood costs.
Compilation of Hyatt Legal Services’ Television Commercials (1985 – 1991)
It is interesting that the same service innovations Joel Hyatt was pursuing 30 years ago (e.g. flat fees for basic legal services) on behalf of working-class individuals are now being demanded by the wealthiest and most sophisticated consumers of legal services.
Although Hyatt Legal Plans continues to focus solely on providing legal services to individual consumers, the ideas advocated by Joel Hyatt for the “low-end” of the legal services market started the chain reaction of disruptive innovation that is now being felt by firms in the highest levels of the profession.