“They’re playing Moneyball,” Petrelli told attendees during the Inside P&C conference in New York, decrying the increasingly sophisticated ability of law firms to attract clients and parse effective litigation strategies. He was speaking on the the “Regulation Changes on the Horizon” panel.
One recent tactic he noted involves large law firms buying up smaller firms, which are then able to challenge claims with far greater resources at their command, but without a change in ownership that would be apparent to insurers.
Some of the more visible signs of increasing litigiousness, such as law firm ads on billboards, seem more of a distraction when laid alongside algorithm-driven programs that can scan billions of bits of data for claims potential or client diversion, Petrelli said.
“I’ll give you the billboards,” he added.
Litigation funding is another key challenge for the industry, one of the “four pillars” of aggressive litigation strategy, which also includes claim instigation; litigation platforms, where thousands of attorneys compete for claims; and litigation marketing.
Recent legal reforms in Florida should help in that state, but the insurance industry, regulators included, is “probably eight years” behind the "opportunists” aggressively exploiting current litigation technology.
And rising rates won't help carriers unless fundamental changes are made to the litigation environment. “Carriers can no longer control the frequency. If you can’t control frequency, you can’t control rates,” Petrelli said.
The moderating of rate increases is likely the best consumers can hope for in the short term, given the current level of litigation and, for example, the inflationary pressures driving up costs in home rebuilds.
Cat losses a more manageable challenge
Even rising cat losses, in some ways, present less of a challenge than the current tide of litigiousness, others on the panel said.
Fred Karlinsky, co-chair of the insurance regulation & transition practice at Greenberg Traurig, noted that damage costs from recent Florida hurricanes were at least quantifiable. “What was unpredictable was the cost of the litigation as a result of those storms,” he said.
Cat losses are “what they [law firms] want you to focus on,” said Petrelli. “It’s a smokescreen for the unscrupulous activity that’s going on [over] the internet.”
There are some bright spots on the horizon, however, one being the relative lack of litigation from Hurricane Idalia.
“We don’t know if that’s because of the area it passed through or the legal reforms, but we do think there will be a positive impact [from reforms],” said Karlinsky.
