By Jeff Snider, General Manager, Property & Casualty, Gradient AI
and Chris Bennett, Head of Strategy, Core Solutions, Origami Risk

This article first appeared on WorkCompWire.

Workers’ Compensation litigation can be a big headache for insurers and employers, costing them significant time and money. For varying reasons, lawyers often get involved more than they should, which can result in exorbitant legal fees, drawn-out case durations, and inflated settlement amounts. In fact, research shows that litigated claims can cost up to twice that of non-litigated ones, straining an organization’s resources. Beyond costs, litigation can often delay and prolong the recovery process for injured workers, impacting employee morale and productivity.

Prioritizing effective claims management from the onset is critical to effectively managing the challenges and potential litigation costs. This means gathering, managing, and analyzing data efficiently, coupled with consistent communication to the injured worker. To help achieve these objectives, many insurers are turning to advanced claims management systems with integrated artificial intelligence (AI).

In a 2024 Origami Risk study, 76% of P&C insurers indicated they were already using, accelerating investment, or planning to use AI to support claims management. By integrating AI at the point of decision, claims adjusters and managers are able to identify potential litigation risks early on and take proactive measures.

Spot Claims Risks Early and Take Action

One of the key benefits of integrating AI into claims management is its ability to spot high-risk claims before they spiral out of control. By analyzing various data points like injury types, claimant history, and other risk factors, AI can identify claims that are more likely to result in litigation. AI-driven predictive analytics can significantly reduce claim severity and optimize reserve allocation. By continuously monitoring claim data in real-time, AI flags high-risk cases early, preventing escalation and allowing adjusters and claims managers to intervene sooner, using tools such as early settlement offers, mediation, or focused case management, thereby reducing the chance of legal disputes.

A research study by Gradient AI found that AI-enabled workers’ compensation claims management reduced legal involvement in lost-time claims by 15%. This reduction translates into a 5% savings in lost-time claim costs, equating to an estimated annual savings of $3.5 million based on the study’s insurers managing an average of $70 million in lost-time claims.

AI insights become even more influential when paired with a configurable core platform that provides the ability to take subsequent action in a claim workflow. For example, when AI uncovers factors contributing to a high risk or a fraudulent claim, new tasks, alerts, follow-up actions, or SIU referrals can be automatically generated by the platform. Proactive claims management can lead to faster resolutions, less conflict, and ultimately, fewer cases requiring legal intervention.

AI Delivers Improved Decision Making

AI-powered claims management solutions can also help claims professionals allocate resources more efficiently. For claims managers, these systems identify high-risk claims that require the attention of more seasoned adjusters to manage the claim to a better outcome and enable injured workers to recover and return to work faster.

Similarly, AI-enabled solutions help adjusters to concentrate their efforts on high-risk claims and prioritize cases that need extra attention, while allowing lower risk claims to move through the process with fewer touchpoints. This not only reduces the potential for litigation but also speeds up the claims process overall.

AI also delivers another benefit, bringing consistency to decision-making. AI ensures that claims are handled based on objective data, reducing the likelihood of errors or inconsistencies that might lead to disputes. When claimants feel they are being treated fairly and consistently, they are less likely to seek legal recourse, which reduces the overall rate of litigation.

When paired with a flexible core platform, implementing AI across a claims operation expands AI-derived insights that serve to inform the business on their overall strategy. This translates to improved lifecycle processes from reserving to settlement, while accelerating return–to–work with better operational efficiency.

AI-Driven Analytics Cut Legal Costs and Speed Up Claims

Litigated claims are not only more expensive but also take significantly longer to resolve. Legal involvement is a major cost driver in casualty claims, especially in cases where an injury keeps the employee out of work for an extended period. The ability to identify and address high-risk claims early on can prevent prolonged legal battles, resulting in shorter claim durations. By resolving disputes more quickly, organizations can reduce the burden on both the injured worker and the claims team.

With AI-driven analytics integrated into their core platform, claims professionals can make faster, more accurate decisions, leading to earlier settlements and a reduced chance of lengthy legal disputes. This results in lower legal costs and allows organizations to redirect resources toward other critical areas, such as injury prevention and employee wellness programs.

Similarly, newer, less experienced employees can leverage AI, further enhancing the value of AI integrated into the core platform. AI models capture the collective institutional knowledge of seasoned team members and impart their wisdom, providing “guideposts” to help them perform more effectively and reduce the risks of costly litigation.

Looking Ahead – The Future of Claims Management

Workers’ Compensation litigation can drag on for weeks, months, or even years, in challenging cases.  As litigation continues to drive up costs in workers’ compensation, it is clear that more effective claims management solutions are needed. While litigation poses significant challenges for insurers, AI is transforming the insurance industry by streamlining operations and facilitating data-driven decisions.

AI-integrated core platforms offer a path to not only cut legal expenses but also improve the overall claims experience for insurers, employers and injured workers.

By adopting these technologies, organizations can manage high-risk claims more proactively, resolve disputes more quickly, and avoid litigation whenever possible. In the long run, this will lead to significant cost savings, shorter claim durations, and better outcomes for injured workers.