Property owners in communities ravaged by storms and natural disasters are constantly struggling with second-wave effects as “tech-enabled litigation agitation,” a predatory and clandestine business model that has been in place since 2017, continues to flourish with the rise of AI capabilities such as technology-driven search engines, email scams, and data scraping. In addition to deceptive phishing and misdirection, third-party litigation funding is emerging as a business model. This essentially bypasses the normal insurance claims process and throws policyholders directly into the “litigation” track, often without understanding that they are bypassing the insurance company’s normal claims process. This process not only disadvantaged property and homeowners by misdirecting them into settlement procedures involving large payments to law firms, but also resulted in the collapse of insurance companies seeking to insure properties in high-risk areas due to a large number of “nuclear judgments.” The explosion of these technology-driven practices has left a trail of economic destruction as well as unresolved harm in vulnerable communities across the country.
As described in a companion report published by Demotech on November 11, 2025, this covert opportunistic model leverages online strategies such as search engine optimization and pay-per-click advertising to move insurance claims into disputed or litigated status. This has a significant and negative impact on the insurance industry, leading to insurance company bankruptcies and changes in the industry’s claims resolution patterns. This transition will also increase the number of claims closed without payment, which will result in claims taking longer to resolve. This is a direct result of the economies of scale inherent in the capabilities of the multiple litigation platforms in use.
The current and future financial implications associated with these practices and this business model are significant, as the success of this business model has raised billions of dollars in third-party litigation funding and influenced the legal profession to introduce and consider changes to the rules of professional conduct regarding the involvement of non-lawyers in law firms.
The success of this business model has led the Association of Professional Responsibility Lawyers (APRL) to call for changes to rules addressing the involvement of non-lawyers in the law enforcement system. The practice is now allowed in jurisdictions such as Utah, Arizona, and the District of Columbia, which have amended their rules to allow non-lawyers to own interests or hold positions of responsibility in law firms.
To stem the meteoric rise in the unchecked pipeline of technology-enabled litigation claims, lengthy payment patterns, and high payouts, U.S. Sen. Thom Tillis (R-North Carolina) and Rep. Kevin Hahn (R-Okla.) have developed a proposal that would make litigation less attractive by subjecting profits from third-party litigation funding to federal taxes and taxing the profits rather than exempting a portion of the litigation funding. profit. The proposal also aims to reduce the attractiveness of investment in civil litigation, address the influx of funds, and reduce other issues such as conflicts of interest, foreign investment, frivolous litigation, and predatory practices.
Joe Petrelli, president of Demotech, Inc., has developed original research that sheds light on this business model, and his latest analysis summarizes the associated industry implications. Demotech’s project, executed by Todd Kozikowski, President and CEO of 4WARN, Inc., unearthed evidence of widespread cyber-enabled online targeting and attacks against insurance companies.
According to Petrelli, “These coordinated high-tech scams and email attacks are taking advantage of the post-storm chaos, capitalizing on the consumer crisis, and accelerating carrier litigation to unsustainable levels. Surprisingly, it’s not just homeowners who are being victimized; the entire insurance industry and the U.S. ‘s transportation economy, an industry that serves as a critical safety net for property owners and provides business stability across the country is being exposed to a clandestine online business model built on organized online agitation to secure contested rights and interests.” Claims in Litigation. Petrelli continued, “At one recent point in Florida, failed airline groups had a market share of 3% in insurance premiums, but annual new claims market share had grown to nearly 20%. I knew that this meteoric rise in new claims each year was driven by ‘something new.’ That realization led to this groundbreaking research project and Todd’s discovery.”
The main research findings are as follows.
• Technology-enabled litigation: A business model that can destroy carriers through industrial-scale litigation. For more than a decade, “nuclear verdicts” and “social inflation” have been identified as the causes of the insurance availability and affordability crisis. Demotech’s research project uncovered a secret business model called “technology-enabled litigation agitation” that has been in operation since around 2017. This model uses search engine optimization, pay-per-click advertising, and other online strategies, complemented by litigation marketing and platforms, to move claims into contested or litigated status. This business model has led to the bankruptcy of several insurance companies, particularly property and casualty insurance companies in Florida. By exploiting weaknesses in coverage and policy provisions at an unprecedented level of technology, carriers can be destroyed through industrial-scale litigation. A study by the Florida Department of Insurance Regulation estimates that the cost of a litigated insurance claim is 360% higher than the cost of a non-litigated case for the same peril.
• Claim migration and settlement patterns: Business models have changed claim settlement patterns and litigation platforms have significantly reduced litigation costs, resulting in longer settlement times and more claims being closed without payment. This pattern suggests that claims departments are spending resources on claims that are economically viable to file but ultimately go unpaid, delaying the resolution of more difficult and valuable claims.
• Attractiveness to the investment community: The success and profitability of this business model has attracted tens of billions of dollars in third-party litigation funding. Notably, this model has also received significant attention from the investment community due to its disruptive impact on the insurance and transportation industries. In addition to crippling certain insurance companies, this business model led to the bankruptcy of many shipping companies. Namely, companies like Yellow Freight, Davies Transportation, Carroll Fulmer, Celadon, Nationwide, Preston, Transcon, Jevic, and Arrow have the ability to change claims settlement patterns in an insurance industry with more than $2 trillion in assets.
• Transforming the legal profession. The advent of online technology, which facilitates an increase in the volume of litigation claims, has also led some members of the legal profession to seek amendments to existing rules of professional conduct to allow non-lawyers to invest in, own, or coordinate law firm marketing efforts. The model attracts third-party litigation funding and has become a popular high-yield asset class, according to Bloomberg. Alarmingly, efforts to require disclosure of third-party litigation funding often result in new contract structures that circumvent legally enacted disclosure requirements.
Demotech’s unique research initiatives developed by Joe Petrelli and initiated by Todd Kozikowski have uncovered an entrenched, powerful, multifaceted and profitable business model that attracts tens of billions of dollars in litigation funding. Litigation reform is needed to control ultimate compensation costs for consumers while ensuring stability for insurance companies. While it is imperative that the legislation proposed by Senator Tillis and Representative Hahn be enacted to address opportunistic litigation practices, there is an urgent need for consumers, agencies, storm recovery leaders, and regulators to work together to expose, identify, and address these practices. Above all, injured policyholders should be encouraged to contact their agents or carriers directly to discuss or report claims, rather than “clicking on links” in pop-up ads or unsolicited emails.
