How to spot coverage disputes before they go nuclear
Insurers can use AI and machine learning to detect the likelihood of a large verdict, this technologist argues.
Insurance carriers can save billions by detecting nuclear verdicts before they happen.
With large settlements rising in frequency and amount, Robert Tyson, founder of Schaefer City Technologies, said in an interview with PropertyCasualty360 that AI can take an existing data set with the right algorithms and project future results.
“By using AI and machine learning to attach and analyze claim systems for predictors associated with nuclear results, it is possible to deliver an exposure likelihood and provide a risk score,” he said. “Information claims professionals can then make informed decisions, well beyond what any one claims professional could make on their own, and then adopt a strategy to resolve or reduce the risks to a particular claim, and literally millions of others.”
Meanwhile, the gap between liability loss and insurance coverage limits purchased by companies is widening at an alarming rate due to nuclear verdicts playing a major role in the mismatch.
Tyson said more than $65 billion was awarded in nuclear verdicts the last five years.
“That’s enough to buy the Palace at Versailles,” he said. “If even a third of those had been detected in advance, insurers could have modified their approach and settled them, avoiding trial altogether. Imagine what $20 billion in savings looks like for the insurance industry and the businesses they cover.”
Social inflation, or the widespread public perception that large corporations have deep pockets, is driving up the cost of insurance claims as well as increased litigation, broader definitions of liability, and plaintiff-friendly legal decisions.
At the same time, nuclear verdicts have become more widespread. According to a recent study by Marathon Strategies, no company is safe, with nearly 50 unique industries being impacted last year including chemicals, automobiles, home furnishings, internet services, and electric utilities.
“The increased risk in specific jurisdictions or lines of business has resulted in insurers opting to simply not write in those places, or offer those lines of business,” Tyson said.
“We have seen this in trucking and transportation, and in jurisdictions like Florida, Texas and Illinois,” he added. “Insurers must take calculated risks, and the frequency and severity of nuclear verdicts is creating untenable risk for the insurance community.”
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