Blog
June 5, 2025
von
Achim Kohli
How can claims leaders embrace AI technology while maintaining trust, compliance, and expert oversight? Let’s explore.
Insurance claims professionals are facing two significant challenges: escalating litigation costs and the need to modernize their processes through the use of artificial intelligence (AI). Multi-million dollar jury awards ("nuclear verdicts") have surged, inflating claim payouts and legal expenses.
Since 2020, the frequency of jury awards exceeding $10 million has climbed rapidly, outpacing economic inflation. In 2024 alone, U.S. courts delivered a record 135 nuclear verdicts, up 52% from 2023, with total payouts doubling year-over-year. This trend, known as social inflation, is eroding insurer profitability and driving premium increases.
At the same time, AI innovation is offering insurers a strategic edge.
Agentic AI in claims, autonomous digital agents that help adjusters, has emerged as a powerful tool to process tasks, flag high-risk files, and streamline complex workflows. Forward-thinking insurers now view AI tools for insurance not just as efficiency drivers but as proactive shields against legal escalation.
So, how can claims leaders embrace these technologies while maintaining trust, compliance, and expert oversight? Let’s explore.
Key Takeaways
- Litigation Risk is Growing: Social inflation and nuclear verdicts are increasing the frequency and severity of claims, placing pressure on insurer loss ratios.
- Agentic AI Offers a Solution: By using Agentic AI to triage claims, detect litigation risk, and streamline workflows, insurers can reduce legal exposure.
- Expert Judgment Still Matters: The most effective claims strategies pair AI automation with expert oversight, delivering speed without sacrificing empathy or fairness.
The Escalating Cost of Litigation in Claims
The cost of litigating insurance claims is rising steeply. Social inflation, a confluence of legal, societal, and economic forces, is fueling larger awards, more lawsuits, and longer resolution times.
Nuclear verdicts are a significant factor. Once rare, these $10M+ jury awards are now commonplace. In 2024, there were 135 such verdicts totalling $31.3 billion, an astounding 116% increase in payout from the year before.
Additionally, "thermonuclear" awards exceeding $100 million are becoming more frequent, posing catastrophic risks to insurers. Since COVID-19, outsized verdicts have grown faster than economic inflation, forcing insurers to boost reserves and raise premiums.
These trends directly burden claims operations:
- More claims are litigated.
- Legal costs and defence counsel hours are growing.
- Adjusters spend more time navigating legal complexity.
- Coverage terms are tightening to manage exposure.
Insurers are increasingly leaning on excess and surplus lines to avoid underpricing risk in volatile environments. But without innovation, these changes aren’t enough to break the litigation cycle.
AI as a Shield Against Legal Escalation
Can AI reduce litigation exposure? When deployed strategically. Agentic AI in claims enables early detection, more innovative interventions, and automated workflows that collectively minimize the risk of escalation. Here’s how:
Settlement Optimization
AI models analyze millions of past cases to predict fair settlement ranges. These tools help claims leaders avoid costly overpayments or ill-timed denials. Some insurers now use AI to benchmark attorney effectiveness and decide when to settle versus litigate.
Fraud & Attorney Involvement Prediction
Machine learning algorithms flag potential fraud or predict if a claimant is likely to hire legal representation. Early intervention strategies, such as prompt and fair offers, can significantly reduce the likelihood of lawsuits.
Litigation & Defence Support
When litigation does occur, AI accelerates the case preparation process. It assists in document review, evaluates defence counsel performance, and extracts key insights from legal history or social media activity to support trial strategy.
Enhanced Communication
Agentic AI engages claimants with real-time updates, reducing uncertainty and dissatisfaction. This improves customer experience, which is directly linked to litigation risk.
AI is not a magic wand but a strategic lever. Claims teams leveraging AI are better positioned to prevent legal escalation and maintain control of outcomes.
Enhancing Decision-Making, Not Replacing Valued Employees
Contrary to fear-based narratives, AI isn’t replacing claims professionals; it’s empowering them.
Agentic AI excels at routine, high-volume tasks. Adjusters, meanwhile, focus on empathy-driven judgment, complex negotiations, and ethical decisions. Here’s how the synergy works:
- Information Gathering: AI extracts facts from documents and systems. Professionals use these insights to determine liability.
- Straightforward Approvals: AI automates low-risk payments. Adjusters intervene on flagged or ambiguous claims.
- Fraud Alerts: AI detects patterns. Investigators dig deeper when red flags arise.
- Settlement Proposals: AI suggests offers. Managers make the final call.
Keeping the employees in the loop ensures oversight and trust. This model increases efficiency while preserving the quality and accountability expected from insurers.
When AI is implemented well, organizations report:
- Up to 67% reduction in handling costs
- 4x productivity increase for adjusters
- Better morale and retention due to less repetitive work
By empowering claims teams with intelligent tools, insurers not only improve internal operations but also boost service delivery and policyholder satisfaction.
Building Trust and Ensuring Compliance
The integration of AI into claims workflows also requires a robust commitment to data privacy and regulatory compliance. Carriers must:
- Conduct regular audits of AI systems for bias or discrimination
- Maintain clear documentation of AI-driven decisions
- Ensure all claimants can speak to a representative when needed
Transparency is key. Communicating how AI supports, not replaces, claims handling helps build trust with both policyholders and regulators. As more states introduce AI governance rules, proactive compliance will be a competitive differentiator.
Future-Proofing the Claims Function
AI adoption is not just a short-term fix; it’s a long-term strategy. Insurers that invest today in intelligent automation and ethical AI will be better prepared for the following:
- Surges in claim volume
- Complex mass tort litigation
- Evolving regulatory environments
By scaling Agentic AI thoughtfully, claims organizations can increase their capacity and resilience while maintaining service quality. It’s about creating a future-ready operation that is agile, accountable, and aligned with customer expectations.
Conclusion
Litigation and social inflation are reshaping the insurance industry, but Agentic AI offers a way forward.
By blending autonomous technologies with professional expertise, insurers can:
- Resolve claims faster
- Reduce litigation risk
- Improve service quality
- Lower overall claims costs
The winners in 2025 will be those who act now, deploying AI not as a replacement but as a force multiplier. By embracing Agentic AI in claims, insurers build operations that are efficient, compliant, and customer-centric.
This is the new standard: faster, fairer, and future-ready.
FAQs
1. What is Agentic AI in the context of insurance claims?
Agentic AI refers to autonomous digital agents that operate within claims workflows to handle repetitive tasks, flag risks, and provide decision support. They work alongside expert adjusters to speed up processes and enhance consistency.
2. How does AI reduce litigation in insurance?
AI helps identify high-risk claims early, optimize settlement decisions, and improve communication with claimants. By proactively addressing these factors, insurers can reduce the likelihood of disputes escalating into lawsuits.
3. Will AI replace claims professionals?
No. AI is designed to support, not replace, claims professionals. It handles data-heavy tasks and provides insights, while professionals retain final decision-making authority and manage complex, sensitive interactions.
