AI Is Making Litigation Profitable at Smaller Claim Sizes

§ 01 Executive Snapshot

• What: U.S. commercial auto liability premiums increased, but losses continue amid rising litigation costs driven by AI.
• Who: Key players include Milliman, AM Best, Demotech, 4WARN, and plaintiff law firms.
• Why it matters: The increasing use of AI in litigation is reshaping the landscape, making it easier and cheaper for plaintiff firms to pursue cases, potentially leading to more lawsuits and higher costs for insurers.

§ 02 Key Developments

• U.S. commercial auto liability direct written premium rose 12.3% to just over $43 billion in 2024, according to Milliman.
• The broader commercial auto line posted a $4.9 billion underwriting loss in 2024, marking the 14th consecutive year of losses, as reported by AM Best.
• Plaintiff law firms targeting transportation claims spent over $228 million annually on paid search advertising, with about 88% of those firms actively running paid campaigns.

§ 03 Strategic Context

• The commercial auto insurance industry has faced consistent underwriting losses despite premium growth, indicating a misalignment between pricing and risk.
• The integration of AI in litigation is creating a paradigm shift, enabling plaintiff firms to target cases that were previously not financially viable to pursue.

§ 04 Strategic Implications

• Immediate implications include an increased volume of lawsuits as AI lowers the barriers for plaintiffs to file claims, potentially leading to higher costs for insurers.
• Long-term implications involve the necessity for defense firms to adopt similar technologies to remain competitive and effectively manage claims.

§ 05 Risks & Constraints

• Potential regulatory scrutiny around the use of AI in litigation and its impact on claim sizes and insurance premiums may pose challenges.
• The slow adoption of AI by defense firms could lead to significant competitive disadvantages in the evolving legal landscape.

§ 06 Watchlist / Forward Signals

• The litigation intelligence market is projected to become a continuous, predictive infrastructure by the end of 2026, influencing how claims are managed.
• Monitoring growth in the global litigation funding market, expected to reach nearly $50 billion by the mid-2030s, will provide insights into the evolving legal funding landscape.