COLUMBUS, Ohio, Aug. 1, 2024 /PRNewswire/ -- Incorporated in 1985, Demotech, Inc. (Demotech) is a leading financial analysis firm serving the Property and Casualty, Life and Health, and Title insurance sectors. In July 2022, Demotech became the tenth firm to be registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO) in the class of insurance companies, joining AM Best, Fitch, Moody's, and Standard & Poor's.

While proud of this significant milestone, Demotech's 2022 discovery of a covert practice by unscrupulous lawyers targeting insurers marks a defining moment. Demotech research conducted with Todd Kozikowski exposed troubling trends that we are comprehensively detailing today.

We observed a sharp rise in claims litigation against certain insurers that had ceased writing new business, shed policies, or reduced underwriting. The growth exceeded what was expected due to rampant lawyer advertising, prompting us to engage Mr. Kozikowski, an expert in data analytics and artificial intelligence, to explore the potential role of technology in this phenomenon.

Our research revealed the "tech-enabled claim instigation" business model: a combination of search engine optimization (SEO), litigation marketing, litigation analysis platforms, and litigation financing aimed at originating contested claims. The model heavily targets the transportation and logistics sector and commercial automobile liability insurance providers.

The Impact of Tech-Enabled Claim 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 the targeting of insurers and trucking companies is a major cause. A review of countrywide commercial automobile liability claim counts from 2014 to 2023 revealed significant trends, as shown in the chart below.

Commercial Auto Liability Insurance Claims

Percent of Total Claims Reported At Twelve Months

*Source: Demotech research. Aggregate industry data from filings by insurers reporting to the National Association of Insurance Commissioners (NAIC), provided by S&P Global.

• Declining Percentage of Claims Closed with Payment (blue line): The quicker a claim is closed, the less it costs. A declining trend in quick settlements means rising claim costs in commercial automobile liability.
  
  
• Rising Percentage of Claims Closed Without Payment (gray line): While appearing to be favorable at first glance, this trend indicates increased defense costs for insurers, likely due to the scaling and economies of using litigation platforms to crate and file contested claims.
  
  
• Increasing Percentage of Claims Outstanding (orange line): More human and financial resources are required to settle these claims – even those that don't result in indemnity – further straining insurers and self-insured entities.

Saturation by an increasing number of litigated claims can overwhelm limited resources of state judicial systems, benefiting opportunists, as prolonged settlements result in higher costs.

Further evidence of the impact of tech-enabled claim instigation on the transportation and logistics industry is seen in the online targeting of specific companies by multiple entities seeking to instigate contested claims.

Schematic of Opportunist Attacks on the Transportation and Logistics Industry*

*Based on findings from Demotech research. Chart courtesy of 4Warn, Inc.

The size of each bubble in the chart indicates the scope of a specific opportunist's online presence relative to the other opportunists reviewed. The size of a targeted entity within a bubble represents the entity's degree of targeting by the opportunist.

The diagram below highlights key discoveries of Demotech research relative to an individual supply chain logistics company.

Sample Scope of Opportunistic Targeting of a Transportation and Logistics Company

Conclusion

Demotech and Todd Kozikowski uncovered the existence of a scandalous nationwide business model that leverages search engine optimization, litigation financing, and marketing to use AI capabilities of litigation platforms to generate contested claims. This tech-enabled claim instigation drives social inflation and nuclear verdicts, making insurance less available and affordable. Its ill-gotten profits encourage ever more litigation, exacerbating the underwriting cycle and pricing challenges for insurance buyers in the transportation and logistics sector.

Absent effective responses by targeted insurers, tech-enabled claim instigation will continue to escalate, fostering more litigation financing in an endless cycle. Demotech is proud to be the only rating agency to connect the dots of litigation platforms, SEO, litigation marketing, litigation financing, and rising litigation frequency.

Understanding these factors allows for better risk management and protection for Demotech-rated insurers serving the transportation and logistics sector, safeguarding their customers and shareholders.

About Demotech, Inc. (www.demotech.com)

Demotech, Inc. is a financial analysis firm specializing in evaluating the financial stability of regional and specialty insurers.  Since 1985, Demotech has served the insurance industry by assigning Financial Stability Ratings® (FSRs).  Demotech's philosophy is to review and evaluate insurers based on their area of focus and execution of their business model rather than on financial size.  Demotech was the first to review and rate independent regional and specialty Property and Casualty insurers.  Demotech's consistently expanding list of accreditations and acceptances has resulted in rating and reviewing 460 insurers operating in the US. As of July 11, 2022, Demotech, Inc. is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO) in the class of ratings for insurance companies.

View original content to download multimedia:https://www.prnewswire.com/news-releases/demotech-inc-unveils-critical-findings-on-impact-of-tech-enabled-insurance-claim-instigation-on-the-transportation-and-logistics-sector-302212417.html

SOURCE Demotech, Inc.