U.S. insurers use technology to manage claims costs as legal expenses rise

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Insurers use tech to manage claims

Highlights

Insurers have reduced loss adjustment expense ratios over the past six years by adopting automation, AI, and machine learning, with personal lines outperforming commercial lines.
Defense and cost containment expenses in commercial auto liability will reach their highest level in a decade by 2025, driven by legal pressures and fraud detection costs.
AM Best notes the sector is at an inflection point as insurers, attorneys, and vendors all accelerate AI adoption, spurring greater insourcing and specialist hiring to optimize claims outcomes.

Claims cost trends and technology adoption

As reported by AM Best, insurers are deploying automation, artificial intelligence and machine learning in claims handling to improve efficiency and lower loss adjustment expenses, even as overall claims costs remain under pressure. AM Best analysts say loss adjustment expense ratios have declined over the past six years, with personal lines carriers generally performing better than commercial insurers because personal lines claims are more standardized and easier to automate.

Sridhar Manyem, senior director at AM Best, says technology has been more effective in personal lines because commercial claims vary widely by business line, industry, company size and geography. That complexity, together with the involvement of doctors, lawyers and expert witnesses, makes commercial claims harder to process at lower cost.

Christopher Graham, senior industry analyst at AM Best, says insurers' claims costs have not declined and may have increased on a per-claim basis. He says the industry is seeing a drop in the ratio of adjusting and other expenses to incurred loss after COVID, but separate data also points to slower claims reporting, settlement and payment patterns, especially when attorneys are involved.

Legal pressure and operational response

Defense and cost containment expenses are rising across liability lines, with Graham highlighting commercial auto liability as a notable pressure point. In commercial auto, defense and containment costs reach their highest level in a decade in 2025, while workers' compensation and medical-related claims also face pressure from fraud detection costs, legal-led treatment and rising handler salaries.

Krista Glenn, executive vice president and chief claims officer at Westfield Specialty, says claim teams are balancing expense spending against indemnity outcomes, sometimes choosing higher upfront claim expenses to support earlier settlements or better overall results. Cynthia Kolb, vice president of U.S. specialty claims at Intact Insurance Specialty Solutions, says workers' compensation faces the same legal and medical inflation pressures seen in other claims areas, with legal involvement extending claim duration.

AM Best says the sector is at an inflection point as carriers, plaintiff attorneys and vendors all increase their use of AI, reshaping how claims are managed. Insurers are also focusing more on bringing services in-house and investing in specialist expertise in key claims functions to improve outcomes and reduce reliance on outsourcing.

In our earlier article on Chariot Claims’ $10 million Series A raise, we explained how the startup is using AI and automation to help law firms process mass arbitration and other high-volume consumer claims. We also noted that the company’s platform handles large volumes of submissions and is building tools to speed up case review and research, reflecting the broader momentum in legal tech funding and AI-enabled workflow automation.

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