How Data Innovations can Help Insurer Litigation Exposure
Litigation is a BIG deal for Insurers.
Carrier Management reported in June the 2023 the Insurance Litigation Report released by Lex Machina revealed insurance cases increased over the last three years with 18,912 insurance cases litigated in federal courts in 2022, a 30% increase over the prior year, while P&C Specialist reported a study of 34 personal lines carriers revealed that legal expenses surged an average of 56% between 2019 and 2022. The total legal expenses paid by the cohort of 34 insurers rose from $421 million in 2019 to $480 million in 2022, a 14% hike. The Insurance Information Institute (iii.org) detailed statistics showing the average car accident liability claim in 2020 was $20,235 in bodily injury and $4711 for property damages.
While more recently, AM Best Financial reported between 2018 and 2023, litigation management costs for the combined Property & Casualty industry increased 19% which amounted to $4-5 billion; bringing total litigation expenses to -$248B of LAE. In personal and commercial lines, insurers are experiencing the adverse effects of social inflation while revising approaches to managing litigation claim files nationwide.
The Problem of Social Inflation
The Insurance Information Institute and the Casualty Actuarial Society (CAS) published the 2022 research paper on Social Inflation and Loss Development which described social inflation as used by insurers, “the rising costs of insurance claims resulting from increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions, and larger compensatory jury awards.” In researching the impact of social inflation on the insurance industry, the paper’s analysis focused on commercial auto liability – one of the hardest hit sectors.
Increasing Claims Frequency and Payout Challenges
Claims and litigation are drivers of the personal lines challenges. The actual amount of the claim compensation depends on the extent of damage suffered and various other factors, and data on claim averages for bodily injury after a collision, varies. It is the severity of injury that drives compensation, and is one of the leading factors contributing to the amount of auto accident settlements. A Martindale-Nolo survey revealed the average compensation for car accident victims who were not injured was $16,700, while injured parties received an average of $29,700.
The Insurance Information Institute reported commercial transportation is among the sectors most severely affected by more frequent lawsuits generating higher insurance claim payouts. In a 2020 study, the American Transportation Research Institute found from 2010 to 2018, the size of jury verdicts grew 33% annually. The growing frequency of lawsuits and costlier jury verdicts are leading to increased costs as rates are adjusted to reflect the changing risk profile.
Additionally, as the frequency of car accidents continues to rise nationwide, motivated by increasing numbers of drivers on the road coupled with higher frequency of distracted drivers, perennial fraudulent claims and auto thefts, and an alarming increase in instances of abuse of the legal system by increasingly costly lawsuits, it is no surprise the costs to auto insurers is significant when it comes to insuring vehicles and drivers. Litigation is simply not helping things and insurance carriers are feeling the pressure.
Data-driven Modernization to Litigation Management
Proactive action using available data-driven technologies can make a significant impact on claims and litigation outcomes for insurance companies. Insurers have the ability to reinvigorate the classic levers of litigation management and modernize processes by:
- Improving the data hygiene of core claims systems
- Leveraging advanced analytics and AI-driven decision support across the business and portfolio
- Implementing use of enhanced data utilization in order to enhance claims settlement accuracy and develop more effective methods for resolving litigation claims
- Utilizing innovative market-available technologies to look across previously siloed data for a more comprehensive view of claims, litigation cases, and more
- Applying AI-powered intelligence to inform litigation strategies, counsel selection, and detect fraud
- Incorporating AI-led decision support to align claims cohorts with historical claims outcomes by attorney, assess not only law firms, but individual attorney performance based on claim types; all of which help to ensure insurers leverage legal team expertise where it is most effective
Key Areas of Focus for Proactive Litigation Claim Settlement
For example, improving the overall litigation strategy can be supported by using advanced analytics and AI-led decision support. Larger volumes of data and AI-powered systems capable of processing the vast amounts of data, including third-party information, allow insurers to uncover insights to improve the claims operating model. AI can be instrumental in understanding expected costs and complexity of every case, and can also support more accurate monitoring of every individual litigation case, including budgets and budget changes, spending forecasts, and task deviations.
Enhancing Historical Data and Current Models
Advancements in technology based in artificial intelligence and data analytics have made it possible for insurers to get even better at utilizing the power of data. As an industry that has excelled at applying data intelligence for business-use for decades, insurers have at their fingertips some of the most advanced technological resources available on the market. Siloed, outdated, or inaccuracies in data, records, and information can be a thing of the past, and replaced with real-time, immediately deployable and actionable intelligence to optimize how they fast-track profitability and serve their customers via application of AI-driven decision support technologies.
Insurers can take the critical steps today, in moving forward with the technologies to utilize for the future – but the time is now to do it.
Read the case study on how Pinpoint helped a national auto insurer identify an additional 6% of third-party claimants with the highest and lowest likelihood to seek attorney representation at First Notice of Loss (FNOL) using just a name and address; delivering a solution helping combat the problems of the increasing number of people engaging with lawyers to litigate, increasing costs in litigation, and increasing third-party attorney fees.
