Another Update on the Litigation Frontier: Tech-Enabled Claim Instigation

Previous articles in The Demotech Difference have summarized how Demotech’s pioneering research into carrier solvency led to the unearthing of the countrywide phenomenon Demotech calls “tech-enabled claim instigation.” This business model leverages litigation platforms with artificial intelligence capabilities, sophisticated online marketing including search engine optimization, and has been so successful, it is attracting litigation financing at an accelerating rate.

Recently, at the National Conference of Insurance Guaranty Funds annual meeting, May 1-2, 2024, Columbus, Ohio, 4WARN’s presentation spotlighted the alarming acceleration of tech-enabled claim instigation. This phenomenon, driven by opportunists leveraging internet-based tactics, poses a significant threat to insurance industry profitability, carrier solvency, and the availability and affordability of insurance. Joe Petrelli, president of Demotech, who initiated the research to unearth this business model, and I described this business model, and why carrier-specific responses are crucial to consumer access to reasonably priced, readily available insurance as well as the insurance industry’s future.
Imagine the traditional door-to-door salesperson of the past — Fuller Brush, Encyclopedia Brittanica, Amway. Now, replace that mental portrait with one of individuals tapping on the digital windows of your email, web site, or web pages, while using artificial intelligence to otherwise identify and exploit every possible vulnerability in your policy language. This is the essence of tech-enabled claim instigation. This is a sophisticated evolution of opportunistic behavior that has transitioned from door-knocking to “tapping on digital domains” so that when vulnerabilities in your policy language occur, and, let’s face it, there will be adjudications you did not expect, those who seek to litigate your company, will be prepared to do so.

The Rise of Digital Opportunists

The emergence of tech-savvy actors is reshaping the landscape of insurance claims, particularly contested claims. Individuals and firms are using advanced internet marketing tactics, search engine optimization (SEO), and generative artificial intelligence to directly secure contested claims or otherwise redirect a policyholder’s online search from their insurer to a third-party. This is more than a minor nuisance. It is a well-orchestrated effort to leverage technology and artificial intelligence for financial gain — at insurance industry expense.

Part of the initial research, undertaken at Demotech’s request in March 2022, that led to the discovery of this business model was a review of the online presence and activities of a sole proprietor, Florida-based public adjuster. This public adjuster spent $650,000 annually for online advertising. This investment wasn’t about increasing the visibility of his site; it was a strategic move generating 71 percent of the site’s traffic through inorganic means; i.e., paid keywords and pay-per-click campaigns directing people to the site as opposed to an increase in site traffic because people were looking for that site.

Furthermore, the Florida-based adjuster’s online reach extended well beyond Florida, impacting insurers nationwide, from Louisiana to California. This last observation led to the confirmation of tech-enabled claim instigation as a nationwide phenomenon.

Exponential Growth and Its Implications

The growth in contested claims that opportunists have experienced is both impressive and unnerving. The breadth, scope and development of litigation platforms exemplifies the trend to leverage artificial intelligence and technological advances to streamline operations. The capabilities of tech-enabled claim instigation, and the ability of the business model to expeditiously harvest and litigate claims brough about by a chink in the armor of policy wording, are frightening. In calendar year 2021, a small group of Florida-focused insurance companies reported double the number of new litigated homeowners’ insurance claims as the entire state of California’s $12 billion homeowners’ marketplace. This was not coincidence. It was the result of a focused assessment using proven sophisticated efforts to leverage technology to identify and exploit vulnerabilities in the policy language of specific insurance companies. In other words, reconnaissance of the policy language of each company within the insurance system. These tactics are not confined to natural disasters as they span various lines of business beyond property insurance, especially trucking liability insurance.

Staying Ahead of the Curve

In a rapidly evolving online landscape, staying informed while adapting to the impact that new technologies and strategies can have on litigated claim frequency is paramount to remediating the availability and affordability of the insurance crisis. To assist you in doing so, 4WARN has developed the Tech-Enabled” Litigation Risk Score™. Our Score can assist companies with understanding the degree of targeting facing them, baseline that level of activity, and subsequently, measure how 4WARN’s involvement has mitigated their exposure to tech-enabled claim instigation. This score, akin to a golf score where lower is better, provides a company-specific measure of targeting intensity. By understanding the components of our tool, insurers can better identify, assess, and defend against digital, online threats.

Concurrently, the importance of your site’s domain authority in this battle for the attention of your policyholders and consumers cannot be overstated. Websites with lower domain authority scores are higher targets for targeted SEO and Pay-per-Click campaigns, making them more vulnerable to exploitation. Bad actors are adept at attaching toxic links to your site, which lowers its domain scores and thereby increases susceptibility to attacks.

The Future of Insurance in a Digital World

The digital transformation of the insurance landscape is an opportunity and a challenge. While the transparency and availability of data have many benefits, they open the door to misapplication. It’s a reminder that the industry’s commitment to transparency must be matched with robust measures and constant vigilance.

The presentation at the NCIGF conference underscored the necessity of understanding threats and developing strategies to combat them. As Joe Petrelli aptly noted, this isn’t just about preventing insolvencies, it’s about preserving the integrity and profitability of the insurance industry as a whole, so that consumers can access the coverage they need at a price that is determined by the carrier’s underwriting discipline and not by the online targeting of the carrier.

In conclusion, the shift from door-to-door sales tactics to “online window knocking” through web pages and internet activity is the new frontier of claim instigation. As you navigate this digital landscape, staying informed, leveraging advanced analytics, and fostering industry-wide collaboration will be key to safeguarding your future. At 4WARN, founded in response to Demotech’s research unearthing this business model, we are committed to leading this charge through awareness as well as helping insurers turn the tide against digital opportunists.

J.J. Dimond is director of Data Analytics and Engineering at 4WARN, Inc. Using research, data monitoring, and a strong ethical drive, 4WARN helps minimize the cost associated with claims and lawsuits resulting from tech-enabled sources. 4WARN provides a customer-centric response to online claim instigation. Dimond coordinates data analytics by assessing which entities are being targeted online by opportunists. Analyzing key words, pay-per-click and online strategy facilitates the ability of 4WARN to develop customized solutions. Dimond’s previous experience includes several years as an insurtech intern at Demotech, Inc. He has applied for graduation from Miami University, Oxford, Ohio, and expects to secure his Bachelor of Engineering — BE, Electromechanical Engineering, through Miami’s extension program with Columbus State Community College in the near future.