​

Reading time: 12 minutes

Welcome to the Pride,

This week we're breaking format.

Because when industry legends spot patterns that nobody else sees, you don't just summarize.

You dig in.

Three developments caught our attention this week:

• The Rating Agency That Spotted a $443 Billion Fraud
  ​
• The Company That Caught Insurance Fraudsters Red-Handed
  ​
• When Risk Models Break: Insurance's $600 Billion Climate Wake-Up Call

Let's start with how litigators weaponized the internet against insurers…

The Rating Agency That Spotted a $443 Billion Fraud

Joe Petrelli saw the pattern before anyone else did.

Eight Florida insurers collapsed between 2021 and 2022. The Florida Office of Insurance Regulation blamed hurricanes. Wall Street blamed reinsurance costs. Industry consultants blamed everything from climate change to construction inflation.

But when Petrelli pulled the litigation data, he found something nobody expected: St. John's Insurance went from 180 lawsuits in 2016 to 3,508 in 2021. A 1,849% increase. Not from storms—from opportunists who'd weaponized the internet to manufacture claims. (source)​

That discovery would expose an entire shadow industry built to drain insurers dry.

The Actuary Who Levels Playing Fields

Petrelli doesn't fit neatly into the insurance executive stereotype.

(That’s precisely why we like Joe!)

He is dyed in the wool though. Started as a work-study student at The College of Insurance in 1969, crunching numbers at the Insurance Rating Bureau. Collected actuarial credentials like baseball cards—ACAS, ASA, MAAA. Earned his MBA from Ohio State. Built expertise at ISO, Agway, Nationwide.

Then in 1985, he noticed something broken: Rating agencies only rated the giants.

Regional insurers couldn't get ratings. Specialty carriers couldn't access capital markets. Small mutuals couldn't compete for business. The entire system favored size over substance, assets over actuarial soundness.

So Petrelli built Demotech.

David's Slingshot for Insurance

Demotech became the first rating agency to evaluate regional and specialty insurers in 1989.

The establishment laughed. Who needs ratings for companies with less than $1 billion in assets? Why waste time on mutual insurers in Ohio when you could rate multinational conglomerates?

Then Fannie Mae accepted Demotech's ratings. Freddie Mac followed. HUD jumped on board. Suddenly, a $50 million regional carrier could compete with State Farm for mortgage business. A specialty insurer in Florida could access the same markets as Allstate.

Petrelli had done what nobody thought possible: He'd made size irrelevant.

For 11 consecutive years, ACQ5 Global Awards has named him "US Gamechanger of the Year." Because when you level a playing field that's been tilted for a century, people notice.

The Pattern Nobody Else Saw

Fast forward to 2022.

Petrelli's watching Florida insurers collapse like dominoes. Seven were Demotech-rated. Even American Capital Assurance—dual-rated by A.M. Best at an elevated level—went under. Something didn't add up.

The official explanations made no sense. These carriers had:

• Clean audit opinions
• Adequate reinsurance
• Proper reserves
• Regulatory approval

Yet they died anyway.

So Petrelli did what actuaries do. He dug into the data.

Based upon the study by OIR, a litigated claim costs 3.60 times the cost of a non-litigated claim. In other words, one litigated claim is the cost of 3.60 non-litigated claims. But that wasn't the shocking part. The shocking part was the acceleration.

Every failed carrier showed the same hockey-stick pattern:

• Year 1: Normal litigation
• Year 2: Double the lawsuits
• Year 3: Triple
• Year 4: Quintuple
• Year 5: Dead

The $50,000-Per-Month Discovery

Petrelli knew this growth curve was impossible through traditional ambulance chasing.

No amount of billboards or TV ads could generate 20x lawsuit growth in five years. "Something beyond" door knocking, billboards, TV and radio advertising had been deployed. Given the magnitude of the increases in annual litigated claims, "technology" had to be involved.

That's when he called Todd Kozikowski.

The data scientist discovered what Petrelli suspected. Opportunists were spending $50,000 per month on pay-per-click ads. They'd built fake claims departments. Hijacked policyholder searches. Used AI to identify exploitable verdicts. Turned litigation into a venture-capital-backed growth industry.

Kozikowski discovered that opportunists had harnessed search engine optimization, litigation platforms, and online marketing in an effort to generate contested claims.

Florida was just the test market. The model was spreading nationwide.

The 40-Year View

Here's what makes Petrelli different: Perspective.

Having been introduced to the insurance industry in 1969 as a work study student at The College of Insurance, sponsorship by the Insurance Rating Bureau (which ultimately morphed into Verisk), “I have seen pricing cycles, loss reserving cycles and related economic cycles impact the insurance industry for more than 50 years.”

He's seen hard markets and soft markets. Hurricane Andrew and Hurricane Katrina. The liability crisis of the '80s and the financial crisis of '08.

But he'd never seen anything like what he and Todd coined, “Tech-Enabled Claim Instigation.”

“As we sit today, it seems to me that the insurance industry is being transformed from the outside, not the inside. The insurance industry is being transformed by those who attack it, not by those who comprise it.”

The Multiplier Effect

The math is devastating.

When a claim goes from non-litigated to litigated, costs multiply by 3.6x. When litigation frequency jumps 20-fold, rate adequacy evaporates. When opportunists can manufacture claims at will, the entire insurance model breaks.

Petrelli calculated the impact: Carriers needed to price for 6% claim frequency. But they were getting hit with the equivalent of 21.6% frequency once you factor in the litigation multiplier.

No amount of reinsurance could save them. No capital infusion could plug the hole. They were being bled out by algorithm.

From Diagnosis to Cure

Most executives would've stopped at identifying the problem.

Petrelli went further. He connected Kozikowski with the resources to build 4WARN. Testified before Congress. Published research that exposed the entire ecosystem. Turned a financial analysis firm into a watchdog for an industry under siege.

Because that's what you do when you've spent 40 years leveling playing fields.
​
You protect the field itself.

The establishment still doesn't fully grasp what Petrelli discovered. They're fighting yesterday's war with yesterday's weapons while opportunists deploy tomorrow's technology today.

But for those who listen—who understand that eight Florida insurers didn't just randomly fail—the message is clear…

The game has changed.

The question is whether the industry will change with it.

Demotech continues to rate regional and specialty insurers while exposing the forces trying to destroy them. Learn more at demotech.com.

The Company That Caught Insurance Fraudsters Red-Handed

Todd Kozikowski was investigating six Florida insurance bankruptcies when he stumbled onto something that made his physicist brain light up.

Opportunists weren't just chasing ambulances anymore. They were spending $50,000 per month on Google ads to impersonate insurance companies. When hurricane victims searched for their carrier's claims department, they found fake call centers instead. By the time the real insurers discovered the scheme, the damage was done: $17 billion in litigation funding was flowing into a shadow industry designed to manufacture lawsuits.

Six carriers dead. Twenty-fold increase in litigation. All because nobody saw the digital attack coming.

That's when Todd decided to build 4WARN.

1. They Built a Tech-Enabled Litigation Risk Score™

Think of it as a credit score for lawsuit exposure.

4WARN crunches billions of data points—search patterns, cached websites, micro-targeting data, historical litigation trends—and spits out a number between 0 and 100. Score an 81? You're in the crosshairs. Score a 35? You've got breathing room.

But here's the twist: The score changes based on what you do about it.

One carrier watched their score drop from 78 to 41 in six months. Not through legal maneuvering—through digital defense. They saved $9 million in three months by preventing fraudulent claims from ever starting.

The old model: Wait for lawsuits, then fight them.
The new model: See them coming, shut them down.

It's proactive risk management powered by the same AI the opportunists use—just pointed in the opposite direction.

2. They Exposed a $443 Billion Shadow Economy

4WARN didn't just identify a problem. They quantified an entire ecosystem.

Third-party litigation funding outperformed the S&P 500 last year. Law firms deploy AI to scan for exploitable verdicts, vulnerable jurisdictions, and insurance policy loopholes. Private equity pours millions into "litigation portfolios" like they're growth stocks.

Louisiana saw the worst of it: 850 homeowners had their hurricane settlements hijacked by lawyers they never hired. The scheme worked because opportunists had gamed search results so effectively that legitimate victims couldn't find their actual insurers online.

The sophistication shocked everyone. These aren't billboard lawyers anymore—they're data scientists with law degrees, backed by hedge funds and armed with enterprise SEO tools.

4WARN maps this entire network. Who's funding whom. Which firms target which carriers. What keywords they're buying. Which jurisdictions are heating up.

Intelligence that insurers never knew they needed—until their litigation counts went parabolic.

3. They Turned Defense Into Offense

Most cybersecurity plays defense. 4WARN plays offense.

They don't just identify threats—they neutralize them. When opportunists try to outrank insurance companies in search results, 4WARN helps carriers reclaim their digital territory. When fake claim centers impersonate legitimate insurers, 4WARN exposes the operation and helps shut it down.

The approach is surgical: strengthen SEO where it matters, optimize content that protects policyholders, build digital moats around brand assets. They literally help companies become un-targetable.

One logistics company was rerouting trucks to avoid litigation hotspots—until 4WARN showed them how to make the hotspots cold. A regional carrier facing 10 new lawsuits per day dropped to 2 within a year.

The tools are sophisticated. The math is complex. But the outcome is simple: Opportunists move on to easier targets.

The Physics of Fraud

Todd's background matters here.

Before 4WARN, he studied astrophysics at Harvard. Built data systems that could process billions of celestial observations. The same pattern-recognition skills that map galaxies now map litigation networks. The same algorithms that track astronomical phenomena now track digital predators.

"Insurance fraud is just another complex system," Todd told regulators. "Once you map the variables, the patterns become predictable."

Joe Petrelli saw it first. The Demotech founder had watched six carriers collapse in months, each following the same litigation hockey-stick pattern. When traditional explanations failed, he called his physicist friend. What they discovered changed how the industry thinks about risk.

Seven major search platforms now use 4WARN's data. Insurance regulators cite their research. The U.S. House Subcommittee on Housing and Insurance featured their findings in congressional testimony.

Not bad for a company that started with one question: Why are good insurers going bankrupt?

The Future of Risk

Here's what the opportunists don't want you to know: Their entire model depends on targets not fighting back.

They count on insurance companies staying analog while litigation goes digital. They assume carriers won't invest in SEO while law firms spend millions. They bet on institutional inertia.

4WARN flips that assumption.

By making litigation risk visible, measurable, and manageable, they've created a new category of risk intelligence. One that recognizes the biggest threats aren't natural disasters or market volatility—they're algorithms designed to manufacture claims.

The insurers who get this are building competitive moats. The ones who don't are tomorrow's cautionary tales.

In an industry where a single percentage point of claims ratio can mean millions, 4WARN's approach isn't just innovative.

It's existential.

4WARN pioneered tech-enabled litigation defense. Learn more at 4warn.com.

When Risk Models Break: Insurance's $600 Billion Climate Wake-Up Call

Climate change just stopped being theoretical for insurers.

The numbers are brutal: $600 billion in climate-attributed losses over two decades. Twenty-seven billion-dollar disasters in 2024 alone. A 6.5% annual growth rate in climate losses that's outpacing traditional weather claims. And for the first time in recorded history, we're breaching the 1.5°C warming threshold that scientists warned would fundamentally alter risk landscapes.

This isn't a future problem anymore. It's a Tuesday morning crisis call.

The Protection Gap That's Swallowing Markets Whole

Insurance is abandoning entire regions.

California's wildland-urban interface saw 40% housing growth between 1990 and 2020—right as fire seasons extended and drought patterns intensified. Private insurers responded predictably…they left. Home insurance inflation now routinely approaches 100% year-over-year in vulnerable markets. Nearly 8% of homeowners go uninsured, putting $1.6 trillion in assets at risk.

The traditional model assumed geographic diversification would spread risk.

Climate change concentrated it instead. Small island states like Dominica experienced losses equivalent to 270% of GDP from single hurricane events. When your entire risk pool faces correlated exposure, diversification becomes fiction.

Banks are discovering their own version of this nightmare. Most have no idea what climate exposure lurks in their loan portfolios. Those bundled mortgages heading to securities markets? They're carrying unidentified climate risk that could make 2008's housing crisis look quaint.

The old playbooks are burning faster than California forests.

Meet the Executive Rewriting Risk Resilience Rules

Megan Kuczynski built her career turning insurance's biggest gatherings into transformation catalysts.

Twenty years of launching and scaling the industry's most influential events—InsureTech Connect, Insurtech Insights USA, major conferences at Reed Exhibitions and Informa Markets. She didn't just organize meetings. She orchestrated movements. Under her leadership, ITC earned "Fastest 50" designation for explosive growth in 2022.

But Kuczynski saw something others missed: insurance and climate technology were converging into a single existential challenge.

So she built ClimateTech Connect.

Launched in October 2024, her new venture isn't another conference company. It's a collision point where insurance, financial services, government, and infrastructure leaders confront climate reality together. The inaugural April 2025 event in Washington D.C. drew 1,500 executives who finally admitted what everyone knew, yesterday's risk models are dead.

"The insurance industry kept treating climate as a future risk while it was already reshaping every assumption we'd built our business on," Kuczynski explains. Her advisory council reads like a who's who of climate preparedness: executives from Marsh McLennan, Munich Re, Google, and Swiss Re.

The strategy demands brutal honesty. Insurance can't solve climate risk alone.

Banks can't assess their exposure in isolation. Governments can't regulate what they don't understand. The only path forward requires unprecedented collaboration across sectors that barely spoke before.

Most importantly, it requires leaders willing to admit their expertise might be obsolete.

The Climate Tech Revolution Nobody Saw Coming

April's inaugural Climate Tech event in Washington D.C. felt like an intervention.

Insurers, reinsurers, MGAs, brokers, banks, and tech companies gathered to confront a stark reality: the financial system's climate risk assessment capabilities are dangerously outdated. As NAMIC and Moody's presented their findings, one message echoed through every session—adaptation isn't optional anymore.

Majesco's Denise Garth crystallized the challenge. Traditional loss control models that only assessed high-value properties created massive blind spots. The solution? A tiered, AI-driven approach that segments entire portfolios cost-effectively. Digital self-surveys. Video assessments. Property analytics that predict risk before it materializes.

"Today's risk demands a different operational model," Garth emphasized. "It requires embracing technologies that can integrate vast datasets, analyze emerging patterns, and seamlessly communicate insights to reduce risk." (source)​

The technology exists. IoT sensors tracking wildfire conditions in real-time. Sewer systems preventing flood damage through predictive analytics. Ocean temperature models improving hurricane forecasts. But implementation remains fragmented, held back by legacy thinking and institutional inertia.

The Future Writes Itself in Loss Ratios

Insurance faces a choice that's really no choice at all.

Either the industry transforms—embracing forward-looking risk assessment, investing in climate adaptation, rebuilding products for a volatile world—or it contracts into irrelevance. The protection gaps widening across vulnerable markets preview what happens when insurers cling to backward-looking models in a forward-breaking climate.

The leaders emerging from this crisis share common traits. They've abandoned the fiction that past patterns predict future risk. They're investing heavily in predictive analytics and climate science. Most critically, they recognize that their role has evolved from risk transfer to risk reduction.

Because when traditional models break, you don't just need new math.

You need new thinking.

The insurers who grasp this will define the industry's next chapter. The rest will become footnotes in climate history, remembered as the companies that saw the storm coming and closed their umbrellas anyway.

Check out Megan’s Linkedin page for more conversations on climate resilience.

The Bottom Line

From courtrooms to coastlines, institutional insurers are being targeted from the outside in.

Unchecked litigation finance and climate instability are undermining the fundamental logic of coverage, pricing, and risk pooling. Survival won’t come from waiting; it will come from rebuilding risk infrastructure before loss frequency breaks the system.

If you’re a director or officer at an FI, your personal assets face threats from multiple directions…

That's why we created the D&O Contract Vigilance Blueprint, a 5-day email course designed to help you:

• Secure superior D&O insurance coverage and identify overlooked gaps.
  ​
• Protect your personal and institutional assets by proactively addressing emerging risks.

​>>> Get the D&O Contract Vigilance Blueprint​

Don't wait until a catastrophic claim hits to find out your institution is under-protected.

​

Thank you for reading today's edition!

Want to share this edition via text, email, or social media?​
Simply copy-and-paste the link below:
​https://lionspecialty.kit.com/posts/tech-fueled-hyper-litigation-is-weaponizing-your-claims-process​

And if this newsletter was forwarded to you, subscribe directly here.

​

Stay Covered,

Mark & Natasha
Co-Founders and Managing Partners
LION Specialty

​
​
​