A new report from Demotech highlights how "tech-enabled litigation instigation" is reshaping the property insurance landscape, with serious consequences for carriers and policyholders.
Active since around 2017, this covert business model uses AI-driven search engines, targeted advertising, phishing, and third-party litigation funding to push claims directly into litigation, bypassing insurers’ standard claims processes.
The report found that this practice significantly increases claim costs, prolongs settlements, and drives a rise in claims closed without payment. In Florida, for instance, litigated property claims are estimated to cost more than three times the amount of comparable non-litigated claims, creating financial stress for carriers and contributing to several insurer failures.
In some cases, insurers with only a 3% market share of premiums experienced nearly 20% of new annual litigated claims.
Demotech’s research also highlighted how the model is attracting tens of billions of dollars in third-party litigation funding, altering industry-wide settlement patterns and destabilizing markets. The influx of funding and online targeting has created a pipeline of high-volume, technology-driven claims that challenges insurers’ ability to price, underwrite, and manage risk effectively.
The findings further underscore broader impacts on the insurance sector. Carriers face higher claims costs, operational strain, and increased risk of insolvency, particularly in natural disaster-prone regions. The report notes that policyholders are often unaware of the litigation-driven process, leaving them exposed to higher payouts and delayed claim resolution.
In response, Demotech recommended a multipronged approach to address the risks. Lawmakers, including Senator Thom Tillis and Representative Kevin Hern, have proposed a federal tax on profits from third-party litigation funding to reduce incentives for predatory litigation.
At the same time, insurers and agents are urged to ensure policyholders engage directly with carriers rather than responding to online solicitations, safeguarding standard claims processes.
Overall, carriers that can anticipate and adapt to these high-tech litigation pressures will be better positioned to maintain solvency, control claim costs, and protect policyholders in increasingly volatile property insurance markets, according to the report.
