The new report outlines how the technology is being used to target the transport and logistics sectors

In 2022, Demotech Inc., a financial analysis firm serving the property/casualty insurance industry, discovered an undercover practice by unscrupulous lawyers targeting insurers.

Demotech’s research with Todd Kozikowski revealed worrying trends detailed recently.

2022 has seen a sharp increase in claims litigation against certain insurers who have stopped writing new business, dropped policies or reduced underwriting.

The growth exceeded what was expected due to the publicity carried out by the lawyers, which led Demotech to hire Kozikowski, an expert in data analysis and artificial intelligence, to explore the role of technology in this phenomenon.

The research revealed the business model of “technology-based claim instigation”: a combination of search engine optimization (SEO), litigation marketing, litigation analytics platforms and litigation funding aimed at generating contested claims.

The model is largely aimed at the transport and logistics sector and commercial motor liability insurance providers.

The impact of technology-driven demand instigation on supply chains and transportation

Commercial auto liability insurers identify “nuclear verdicts” and “social inflation” as major contributors to deteriorating operating results.

Demotech believes that the targeting of insurers and carriers is a major cause.

An analysis of the number of commercial motor vehicle liability claims nationwide from 2014 to 2023 revealed significant trends, as shown in Chart 1.

Declining percentage of claims closed with payment (blue line): The faster a request is closed, the less it costs. A downward trend in quick settlements means higher commercial auto liability claim costs.

Increasing percentage of claims closed without payment (grey line): Although it appears to be favorable at first glance, this trend indicates increased defense costs for insurers, probably due to the expansion and savings of using litigation platforms to register and file contested claims.

Increase in percentage of outstanding claims (orange line): More human and financial resources are required to resolve these claims – even those that do not result in compensation – further straining insurers and self-insured entities.

Saturation with a growing number of litigated claims can overwhelm the limited resources of state court systems, benefiting opportunists as prolonged settlements lead to higher costs, Demotech’s findings indicate.

Evidence of the impact of technology-based claim initiation on the transportation and logistics industry is seen in the online targeting of certain companies by multiple entities attempting to initiate contested claims, according to the analysis (see Chart 2).

The size of each bubble in the chart indicates the scope of a particular opportunist’s online presence relative to the other opportunists analyzed.

The size of a targeted entity within a bubble represents the degree to which the entity is targeted by the opportunist.

The diagram in Chart 3 highlights the key findings of Demotech’s research in relation to an individual supply chain logistics company.

Demotech and Kozikowski discovered a nationwide business model that leverages search engine optimization, litigation funding and marketing to use the AI ​​capabilities of litigation platforms to generate contested claims.

According to the analysis, this technology-based claim instigation is driving social inflation and nuclear verdicts, making insurance less available and affordable.

Absent effective responses from targeted insurers, technology-based demand instigation will continue to grow, encouraging more litigation funding in an endless cycle, according to Demotech.