AI for the Defense: Should Insurers or Law Firms Pay?

Why It Matters

These findings signal a looming funding gap for AI adoption in defense, potentially widening the technology divide between insurers and law firms. As indemnity pressures grow, carriers’ reluctance to finance AI could affect claim outcomes and cost control.

Key Takeaways

• 50% of carriers think law firms should fund their AI tools.
• 0% say insurers should contribute to law‑firm AI costs.
• Only 3.4% of carriers frequently receive AI cost‑share requests.
• 63.9% now believe higher defense spend can lower indemnity payouts.
• Over 83% don’t track third‑party litigation funding on claims.

Pulse Analysis

AI is rapidly becoming a strategic weapon in litigation, enabling plaintiffs’ counsel to craft data‑driven demand packages and monitor defense tactics. Yet the latest CLM study reveals a stark funding impasse: insurers are reluctant to shoulder AI costs, leaving law firms to decide whether to absorb the expense. This split threatens to create a technology gap, where carriers without AI‑enhanced defense partners may face higher indemnity exposures and slower case resolutions.

Rising indemnity payments and defense fees—reported by over 80% of respondents—underscore the financial pressure on insurers. Interestingly, the long‑standing industry belief that spending more on defense does not curb payouts is eroding; 63.9% now see a possible link between higher defense investment and lower settlement amounts. This shift suggests carriers may reconsider budgeting for advanced tools, especially as billable‑hour models clash with the efficiency gains AI promises.

A parallel concern is the opaque rise of third‑party litigation funding (TPLF). More than 83% of carriers admit they do not track TPLF‑influenced cases, despite its growing impact on case economics and trial likelihood. Without visibility, insurers cannot accurately assess risk or negotiate effectively. As regulatory calls for disclosure intensify, carriers that develop systematic TPLF tracking and partner with AI‑enabled counsel could gain a competitive edge in managing costs and protecting policy‑limit exposures.