Litigated claims are a key driver of increasing loss and expense ratios for property/casualty insurance carriers. Data-driven approaches—in particular, suit avoidance techniques and proactive de-escalation practices—can help insurers reduce litigation rates.

Executive Summary

Litigation avoidance is a superior strategy for carriers and their insureds as compared to litigation management, according to two veteran analytics officers in the insurance industry. Here, they outline a game plan to incorporate pre-suit claims analytics into insurance operations.

ALAE Ratios on the Rise

Some of the key reasons behind these phenomena are:

Litigation funding driving higher incidence of suit filing. Broader definitions of liability. Plaintiff-friendly legal decisions. Larger compensatory jury awards.

In our experience with carriers, 3-5 percent of direct written premiums are spent on litigation management expenses on average in the U.S. P/C insurance industry, with the impact varying by lines of business.

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