Demotech calls for granular loss cost data to combat litigation surge

Joseph L. Petrelli, president and co-founder of Demotech, traces the current instability in the insurance sector back to 2022, when investigations into failed carriers revealed that aggressive, technology-driven litigation tactics were the primary cause of insolvency. These tactics, often backed by third-party funding and supported by shifting legal business structures, have fundamentally altered the landscape of claim management.

Historically, the industry relied on composite loss costs—a calculation of claim frequency multiplied by average claim cost. Petrelli contends this model assumes an equilibrium that no longer exists in an era dominated by targeted advertising and managed legal services. By breaking down costs into specific segments—such as claims closed without payment, litigated claims, and non-litigated claims—regulators can isolate the financial impact of modern legal strategies. This level of transparency would not alter the total dollar amount of losses but would provide the clarity necessary to investigate the true drivers of insurance inflation.