National law firms are investing $10 million to $12 million annually each to direct Google searches to websites that they control in an effort to find new clients to file lawsuits against insurance companies, according to 4Warn, a New Hampshire-based data analytics company.
Joseph Petrelli, co-founder of 4Warn, says that the surge in new litigation created by search-engine optimization techniques led directly to the insolvency of several Florida insurance carriers. His company provides consulting services to insurers to mitigate against what Petrelli calls “technology enabled claims instigation.”
Petrelli said his company searched for patterns after purchasing from Google a database with trillions of search engine results related to insurance. He and 4Warn cofounder Todd Kozikowski presented their findings during a webcast last week with Artemis, a website that reports on the reinsurance industry.
“We’ve always had litigation in the insurance industry,” Petrelli said. “What we are talking about now is the ability to accelerate claims frequency by opportunists.”
4Warn is not the first company to note an increase in insurance litigation. Lex Machina reported last month that there was a 30% increase in the number of lawsuits involving insurers in federal court since last year. The number of federal insurance lawsuits has been rising steadily since 2017, Lex Machina said.
Petrelli said the impact of a successful lawsuit against an insurer once went no further than the cost of the award. But that was before technology.
“Now the litigator can get funding via a litigation marketing firm and say, ‘Go find me as many policyholders as you can of XYZ Insurance Co. because they have a bad policy provision,” he said. “The opportunists know that it going to take at least a year for a filed correction the department of insurance to address the issue until that gets rolled on to the other policyholders.”
Petrelli is an actuary. He said the liquidation of six Florida insurance carriers over a five-year period piqued his curiosity. He is the founder of Demotech, a company that provides financial stability ratings for carriers often not rated by the large rating houses.
Petrelli said Florida insurers have long been accustomed to a disproportionate number of lawsuits, compared to other states. Carriers buttress their reserves to cope with the litigation. But something changed around 2016. He said he knew that something more than billboards and advertising by plaintiff’s firms was driving a huge number of new lawsuits.
St. John’s Insurance Co. is one case in point. The carrier was involved in 180 lawsuits in 2016. The number of suits doubled each year since, reaching 3,508 in 2021. The Florida Office of Insurance Regulation declared the carrier insolvent in 2022.
Petrelli enlisted Kozikowski, a data analytics expert, to help him find out what was going on. After purchasing data from Google, the two concluded that leads generated through Google searches was driving the increase.
Anyone who has used Google to search a topic is likely aware that the results listed at the top of the results are “sponsored” — meaning some company paid to appear prominently on the search-return page. Petrelli said law firms and public adjusters purchase the rights to search terms such as “XYZ Insurance” or “Hurricane Ida claims help.” The data showed one public adjuster was spending $650,000 for sponsored search returns.
Kozikowski said in an email that five large law firms are spending about $45 million a year on Google search returns. He said some of the 43 law firms that 4Warn initially identified as Google search return purchasers have “settled down” in recent months, but new law firms have emerged that are spending $5 million each on Google searches.
When internet users click on a sponsored search result, they arrive at the sponsor’s website. Now a homeowner who may have been trying to find out how to get in touch with his insurer’s claims department is put in touch with a law firm or public adjuster, Petrelli said.
Petrelli said the data they purchased from Google showed that one national law firm was spending $861,000 a month on sponsored Google search returns.
Petrelli refused to identify the law firms that are spending on Google search returns. He said he doesn’t want to invite litigation. 4Warn does provide the identities of the law firms, and the key words they are purchasing, to its customers, he said.
Petrelli presented his findings to the National Association of Insurance Commissioners’ Market Regulation and Consumer Affairs Committee in March. He said regulators were interested, but most told him that there was little they can do because there was no evidence that anyone was violating the law.
But Petrelli says as an actuary, he finds it unlikely that law firms and public adjusters who invest so heavily in Google search returns always comply with the law. He said the disclosure earlier this year that the McClenny Moseley & Associates has used a marketing firm to generate client leads demonstrates how such data can be misused. The Houston-based law firm is accused of attempting to settle insurance claims on behalf of homeowners that it did not represent.
MMA filed more than 1,600 lawsuits in the Western District of Louisiana over the course of several days. Petrelli said law firms that are investing in search-engine advertising are working toward similar numbers, which will drive up claim frequency.
“Without control of claim frequency, insurance companies will quickly lose control of rate adequacy,” he said. “There’s no doubt. It’s just the actuarial formula.”
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