Demotech Urges Granular Loss Cost Reporting Amid Litigation Shifts

Joseph L. Petrelli, president and co-founder of the Columbus-based firm, traced the shift back to a 2022 postmortem of failed insurance carriers. The investigation revealed that industrial-scale increases in litigated claims—often fueled by aggressive online marketing and legal mutations like managed service organizations—served as the primary catalyst for collapse. According to Petrelli, the industry’s reliance on composite loss costs, which bundle diverse claim types into a single figure, masks the predatory nature of modern litigation strategies.

Sharon Romano Petrelli, vice president and co-founder, noted that the standard formula—frequency multiplied by cost—assumed a market equilibrium that no longer exists. Today’s legal landscape is heavily influenced by billboards, mass-media advertising, and alternative business structures designed to bypass traditional oversight. To combat this opacity, Demotech proposes a shift to a segmented reporting model. By calculating the specific frequency and cost of non-litigated claims alongside litigated ones, insurers and regulators could better identify the impact of claim transitioning. This approach does not alter the total dollar amount of loss costs, but it provides stakeholders with the transparency required to investigate the specific financial pressures currently destabilizing the property and casualty sector.