Tech-Enabled Litigation Instigation: The Hidden Threat Fueling Insurer Failures and Delayed Claims

A recent research initiative from Demotech, Inc. has pulled back the curtain on a covert and dangerous business model shaking the insurance industry to its core. Labeled "tech-enabled litigation instigation," this practice harnesses search engine manipulation, phishing emails, and AI-driven platforms to lure vulnerable policyholders into premature litigation. Often triggered before policyholders even contact their insurer, this process bypasses standard claims protocols and dumps consumers into a high-cost legal pipeline—typically without their informed consent.

Insurance claims adjusters are directly impacted by this model’s ripple effects. According to the study, tech-driven schemes elongate claims settlement timelines, spike the volume of non-meritorious claims, and drain adjuster resources on cases that ultimately close without payment. Notably, this business model is associated with the collapse of several property insurers in Florida and numerous transportation companies nationwide. The financial scaling enabled by third-party litigation funding platforms allows law firms to industrialize litigation, overwhelming insurers’ ability to respond and warping loss reserve patterns.

The report also notes that this model has driven attempts to transform legal ethics rules, with some jurisdictions now permitting non-lawyers to own or manage law firms. Meanwhile, U.S. lawmakers have proposed a federal tax on litigation funding profits to reduce the attractiveness of this model.

For claims professionals, this signals a critical need for vigilance. The report advises carriers, agents, and recovery teams to steer policyholders away from suspicious online ads or unsolicited emails and back toward direct contact with their insurer. With insurer solvency, claims timelines, and rate stability on the line, the need to detect and defuse tech-driven claim distortions has never been greater.