A tsunami of technology-generated litigation has been pummeling Florida insurance companies in recent years, contributing to the liquidation of six property insurers in the state in 2022, according to insurance researchers.
The information about tech-inspired insurance claims litigation, which combines litigation funding, litigation marketing, search engine optimization and other online activities, was raised by the co-founder of the insurance-rating firm Demotech, Joseph Petrelli, during recent congressional testimony.
Petrelli, whose company provides financial ratings to insurers in Florida and elsewhere, testified in November before the House of Representatives’ Housing and Insurance Subcommittee about “opportunists” steering internet users to sites they have set up, with the goal of spurring people to file litigated claims in cases that need not be litigated.
“The recently discovered efforts of opportunists have been a significant contributor to the (premium) availability and affordability crises, particularly in catastrophe-prone jurisdictions,” he told the subcommittee.
Petrelli said the research was undertaken by Demotech’s Todd Kozikowski, a data analyst and artificial intelligence expert, in March 2022. Such high-tech efforts by law firms and others to generate the property insurance claims can reduce insurer profits or lead to more company losses, he said during his testimony.
“Similarly, the solvency of smaller insurers might be threatened,” Petrelli said. “Also, employment in the insurance industry may decline as insurers lay off employees or reduce commissions to producers in an effort to reduce expenses and mitigate operating losses. These expense reduction efforts are in addition to the rate increases and coverage restrictions that impact consumers.”
During Hurricane Ian in 2022 and Idalia in 2023, opportunists created websites allowing policyholders to report claims several days before the storms even made landfall, he said.
Petrelli told the Florida Record that one thing state lawmakers can do to counter the tech-generated litigation is to re-examine the role of third-party litigation financing in civil lawsuits.
“Tech-enabled claim instigation is the underlying problem and cause of nuclear verdicts and social inflation,” he told the Record in an email. “Litigation financing is drawn to the outcomes of tech-enabled claim instigation by the rate of return associated with contested claims. In fact, in Utah, Arizona and D.C., recent legislation permits non-lawyers to own a law firm as an investment, much as you and I can buy shares of Alphabet or Microsoft!”
This business model that aims to put disaster victims on an internet path to filing a litigated claim is destroying entire insurance markets within states, according to Petrelli.
“Catastrophe-prone states are particularly susceptible due to the immense surge in insured-insurer activity that is created by hurricanes, floods, wildfires, tornadoes and other natural disasters,” he said.
Thousands of law firms and public adjusters have adopted the tech-enabled claims litigation approach, according to Petrelli, spending millions of dollars in the process.
Over the past year, the Florida Office of Insurance Regulation (FOIR) reports that about 18 property and casualty insurers have entered the state’s market. State officials see this as a positive trend, coming in the wake of the passage of reform legislation to make the insurance market more stable and premiums less expensive.
FOIR has also reported that the state accounts for nearly 80% of all homeowners insurance lawsuits in the nation based on claims filed, even though Florida makes up only 9% of the homeowners insurance claims in the U.S.