The Effect of Ownership Structure on Insurance Company Litigation Strategy

Claims payment is the primary service purchased by the majority of insurance buyers. How this service is performed is important on a couple of levels. For the individual insurer, the claims function composes the majority of its operating costs. As an industry, claims manageemnt can create an indelible impression on insurance consumers. Despite its importance, little is known about the claims function and more specifically about claims management patterns across insurers. This research investigates the claims process as it relates to various insurer financial and organizational characteristics through analysis of federal litigation over insurance contract disputes. The primary result suggests that mutual insurers are generally more likely than stock insurers to resolve litigation through settlements rather than trials. This result is consistent with the existing literature concerning the relationship between insurer ownership structure and business activity choices.