Insurers must adapt to stop nuclear verdicts before they begin
Nuclear Fallout: Outsized lawsuit awards damage American businesses, consumers and the economy.
Nuclear Verdicts® are on the rise nationwide.
These historically high settlements and verdicts are no longer limited to certain urban courthouses, known as “judicial hellholes,” but rather are happening everywhere. New jury verdict records are being set almost daily.
And most importantly for the insurance industry, Nuclear Verdicts® are not happening to new defense lawyers and claims professionals. No, the shocking thing is, Nuclear Verdicts® are happening to the most experienced claims professionals and defense counsel. The best insurance professionals and defense counsel in America are not able to spot or stop Nuclear Verdicts®.
Something has drastically changed, and the insurance industry needs help.
Nuclear Verdicts® drive social inflation
Most Americans do not fully understand just how much $1 billion actually is. It is easier to grasp the magnitude of a “billion” by discussing it in terms of time:
A million seconds is roughly 12 days. A billion seconds, on the other hand, is about 32 years.
This perspective makes the more than $14.5 billion in Nuclear Verdicts® delivered in 2023 absolutely staggering, even without discussing the very real damage these outsized awards cause American businesses, consumers and the economy.
Recent studies from the U.S. Chamber of Commerce Institute for Legal Reform and Swiss Re Institute have confirmed that social inflation (rising insurance claims costs outpacing traditional economic inflation) shows no sign of slowing, and is in direct response to the trend of more and higher Nuclear Verdicts®.
Previous cycles of social inflation were largely triggered by changes in law. This cycle, ongoing since 2015, is instead the result of disproportionate and unjust verdicts.
These Nuclear Verdicts® are the result of a dangerous confluence of psychological tactics employed by the plaintiff’s bar, third-party litigation funding, anti-corporate bias, attorney advertising, and eroding legislative protections. Swiss Re has reported that commercial casualty insurance losses reached $143 billion in 2023, with an estimated 57% increase in liability claims costs tied to the rising number of Nuclear Verdicts®.
Unprecedented insurance losses
Put simply: Nuclear Verdicts® are driving social inflation, and are causing massive insurance losses and unmatched payouts, and will continue to do so if they remain unaddressed by the insurance industry and counsel.
Even more striking? The very perpetrators of this nuclear epidemic continue to adapt, employing new technologies to streamline and maximize efficiency while driving up damages and litigation costs that are ultimately borne by the insurance industry and the consumers they serve.
While there remain clear danger zones known for delivering outsized awards — so-called “judicial hellholes” — the sobering reality is that Nuclear Verdicts® are being delivered across every state and line of business, including in unexpected cases and places. Traditional predictors (jurisdiction, case type, injury severity) are no longer sufficient to alert claims professionals and counsel to nuclear potential.
The insurance industry is on a precipice if we do not adapt to meet these challenges with the same investment in innovation as the plaintiff’s bar and the litigation funders fueling them. “Reptile theory” was coined in 2009, but it is only in recent years that the defense bar has begun to address the damage it causes. We cannot allow the plaintiff’s bar and the litigation funders behind their success to run away with new technology. The very integrity of our judicial system and economic security of our nation demand our attention and commitment to change.
How new technology can help
Just as plaintiffs’ lawyers use AI and new technology to prioritize case intake, build case valuations, and even draft motions and closing arguments, third party litigation funders (TPLF) are now employing technology to identify and rank investment opportunities.
TPLF represents a multi-billion-dollar industry that is largely unregulated and is fueling frivolous and expensive lawsuits. Claimants that would otherwise not have the means to pursue litigation are now equipped with funding from shadow corporations that stand to make massive returns on their investment. And these shadow corporations are reportedly now using new technology to determine which investment opportunities are worthwhile.
Plaintiffs’ lawyers and third-party litigation funders are able to focus their efforts on cases most likely to result in a massive payout before they even reach trial. Does the insurance industry exhibit the same level of litigation savvy?
Given the frequency and prevalence of them, chances are most insurers have future Nuclear Verdicts® lurking in their claims files, representing potentially billions of dollars in losses. If third party litigation funders can determine which cases are most likely to result in a mega award, insurers must be able to identify Nuclear Verdicts® before they happen!
What would catching even one Nuclear Verdict® before it happens mean to an insurer? To their insured? What if every insurer in the country deployed new technology in their claims system to identify and flag future Nuclear Verdicts®? What if the industry adapted?
AI, predictive analytics and machine learning could be put to use within claims systems to detect and identify nuclear results waiting to happen, offering a second set of eyes for claims professionals and added security for insureds. Armed with a nuclear risk score, claims professionals and their counsel could pivot their approach to minimize that risk. Cases could be settled, litigation strategies developed, and new experts retained.
Nuclear Verdicts® could be stopped.
The technology exists. The insurance industry just needs to ask itself if the desire to stop Nuclear Verdicts® and social inflation is strong enough to do what the plaintiffs’ bar has done for close to 20 years: Adapt.
Robert Tyson is the Strategic Managing Partner of the 250-plus attorney insurance defense firm, Tyson & Mendes, and Chief Business Development Officer at Schaefer City Technologies, an award-winning, innovative insurtech company, delivering groundbreaking technology solutions to help insurance and reinsurance companies and their defense counsel spot and avoid Nuclear Verdicts®.
These opinions are the author’s own.
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