AI could transform billing practices in the legal industry, says Clio report

Clio’s recent user conference in Austin shed light on a potentially transformative development within the legal industry, focusing on the growing role of artificial intelligence (AI) and its impact on the traditional billable hour model. The conference highlighted Clio’s Annual Legal Trends Report, revealing that AI could potentially automate up to 75% of the tasks for which legal professionals currently bill. This revelation suggests a seismic shift in how legal services might be delivered and billed in the future.

During his keynote address at the conference, Clio CEO Jack Newton, alongside other executives, emphasised the significant implications of these findings for law firms and their revenue structures. According to the report, 57% of lawyers’ billable hours, 69% of paralegals’, and 81% of administrative staff’s billable hours involve tasks that could be automated, primarily in areas such as information gathering and data analysis.

The study compared data from over 7 million anonymised and aggregated time entries, using a classification system similar to that used by Goldman Sachs in a March 2023 report, which estimated that 44% of legal tasks could be automated. The significant discrepancy between the two reports highlights the rapid advancement in AI and generative AI capabilities, prompting concerns about the future profitability of law firms heavily reliant on the billable hour model.

Joshua Lenon, Clio’s Lawyer in Residence and the main contributor to the Legal Trends Report, commented on this potential revenue loss, suggesting that law firms may need to pivot towards alternative billing models. He proposed a hybrid model combining flat fees for predictable tasks with hourly rates for more complex, unpredictable work, such as trials. This approach, according to Lenon, could offset the financial impact of automating routine tasks and allow firms to maintain profitability.

Flat fee billing, already adopted by some firms using AI, is seen as particularly advantageous due to its ability to reduce costs and increase task completion rates. Lenon illustrated this with an example where automated tools could produce more legal documents in a shorter time at a flat fee, thereby potentially doubling a firm’s profit if the volume of work is increased.

Despite these promising strategies, there is debate about whether fewer lawyers will be needed due to automation. Lenon argues there is significant untapped legal work that could fill this gap, citing Clio’s Legal Productivity Index, which notes a 26% increase in the number of matters handled by legal professionals since 2016. He believes lawyers could capture more of this potential business by better understanding client needs and improving service delivery.

The conference’s findings suggest a future where AI and nuanced billing models coexist, reshaping the landscape of legal services. However, Lenon acknowledges the challenge of convincing firms entrenched in the billable hour model to embrace change, noting that many lawyers remain sceptical of shifting their business strategies unless market forces demand it.

As the legal industry stands at this crossroads, the insights from Clio’s report suggest a gradual, albeit significant, transformation. While AI-driven flat fees appear poised to redefine billing practices, the full scale and speed of these changes rest largely on law firms’ willingness to adapt and the evolving demands of clients across the legal spectrum.

Source: Noah Wire Services