A look at the insurance lawsuit woes of Allstate, State Farm and more

The insurance industry has seen a surge in lawsuits in recent years, as policyholders and regulators alike have taken a closer look at the practices of insurance companies — highlighting the importance of due diligence in underwriting standards. But with the promises of improved efficiency that come with artificial intelligence, how can insurers safely implement these tools?

Research published by Digital Insurance in January polled 100 experts from carriers to brokers on predictions for what 2024 would yield in terms of threats to industry growth, digital transformation opportunities, the growing use of AI and more. 

Respondents from carriers and agencies both agreed that there is value in using traditional AI and generative AI tools, but 73% found that it was too risky to deploy within their organizations. 

Broken down by each individual group, that view was prevalent among 83% of carriers and 60% of agency professionals.

A further 68% held that it was too risky to insure clients that use AI in some capacity, which yielded a smaller disparity in views among carriers and agency experts at 71% and 66% agreeing respectively.

John Romano, principal with Baker Tilly’s principal financial services risk advisory practice, said that securely implementing AI-powered tools in an insurance organization requires regular audits to continually monitor their transparency and explainability.

“Assessing transparency will determine what data is used to come to an answer, and assessing explainability will determine if AI tools can provide understandable and clear reasons behind decisions,” Romano said.

Read more: Does technology make it easier to perpetrate insurance fraud?

The rise in lawsuits against insurance providers over the last few years, while not centered around technology per se, highlights the growing trend of legal action involving business liability, business interruption and non-hurricane homeowners policies.

Lex Machina, a division of LexisNexis company, published its Insurance Litigation Report in June covering the period of 2021 to 2023. Across that time frame, roughly $1.56 billion in total damages was awarded as approved class action settlements, as originally reported by Digital Insurance’s Kaitlyn Mattson.

Romano highlighted the importance of consistent communication between insurers and policyholders as part of managing customer relationships — especially in anticipation of an impending claims event.

“In today’s insurance market, particularly with the increasing frequency and severity of natural disasters, consumers fear they won’t receive the claims payouts they expect. … At the same time, regulators are focused on ensuring that insurers uphold their responsibility to policyholders, with concerns centered on both solvency and the fair treatment of consumers,” Romano said.

Read more: Carriers must educate policyholders on weather damage risks, Nationwide P&C exec says

Read on to dive into some of the top lawsuits that have plagued insurers over the last few years and how they impacted firms and consumers alike.