Are We Losing Our Negotiating Power?

Originally published in Insurance Thought Leadership on October 7, 2024, this article by Taylor Smith and John Burge highlights the growing threat to the insurance defense industry as the plaintiff bar makes significant investments in data and technology. The authors argue that the defense side, particularly in property and casualty (P&C) insurance, must act swiftly to counter these advancements. With plaintiff attorneys leveraging AI to enhance negotiation strategies and secure higher settlements, defense teams face the risk of losing their competitive edge and negotiating power.

THE SCALE OF THE CHALLENGE: THE LARGEST NEGOTIATION NETWORK

The insurance defense industry runs the world’s largest negotiation network, with over 30,000 claims professionals assigning approximately one million cases annually to 30,000 defense attorneys. Nearly 97% of litigated claims are settled without going to trial. However, it’s not just about closing cases; the goal is to achieve “good” settlements that avoid overpayment. Unfortunately, identifying when a settlement is « good » has always been a challenge for the industry.

CHALLENGES FOR THE DEFENSE SIDE

Data on the defense side is disorganized, with inconsistencies across firms and claims departments. This lack of structured data impairs their negotiation strength.

Plaintiff firms adopt AI quickly due to fewer IT barriers and incentives for efficiency, whereas defense firms face bureaucratic and IT challenges.

AI-ENABLED NEGOTIATION TACTICS BY PLAINTIFF ATTORNEYS

AI helps plaintiff attorneys select favorable cases, predict outcomes based on specific insurance companies, and attract more investment in litigation, even for smaller cases.

This strategic use of AI strengthens the plaintiff bar’s position, creating an urgent need for the defense industry to catch up.

HOW AI COULD BENEFIT THE DEFENSE INDUSTRY

1. Risk analysis: AI can assess the risk of facing specific attorneys, venues, and case outcomes.
2. Selling offers: AI can help defense teams present their offers more persuasively, similar to how demand packages are crafted by the plaintiff side.
3. Stronger negotiations: AI tools can predict the opposing party’s walk-away number and assess the impact of legal costs, leading to more effective negotiation strategies.

INDUSTRY URGENCY

Settlement costs are the largest expense for P&C insurers, yet most defense attorneys lack formal negotiation training.

With the plaintiff bar leveraging AI to gain negotiation advantages, the defense side must embrace AI tools to manage indemnity costs more effectively.

The rise of AI in the plaintiff bar is not just a trend, it’s a game-changer. Personal injury attorneys are leveraging technology to craft stronger cases, share data efficiently, and secure higher settlements, all while the defense industry struggles with fragmented systems and outdated processes. The message is clear: to stay competitive in this evolving landscape, the defense side must embrace AI-driven strategies.

It’s time for claims professionals and defense attorneys to rethink their approach, tapping into AI tools to better analyze risks, present offers persuasively, and negotiate with precision. The future of insurance litigation will be shaped by those who can adapt the fastest. The question now is not whether to use AI but how quickly the industry can catch up and integrate these tools into everyday practice. In a world where every advantage counts, the defense industry must move fast, or risk being left behind.