The growth of third-party litigation finance is an indisputable challenge for the insurance industry, one that looms large as US courts return to full operations this year with pandemic-induced restrictions winding down…
The precise impact that the flood of funds from investors to law firms large and small is having on social inflation – or increased losses resulting from rising claims settlements and jury verdicts – is impossible to quantify due to the hidden nature of the vast majority of this financing. But the influence is visible in rising losses across multiple lines, from medical malpractice to personal auto and multiple commercial lines.
“The answer for almost anybody who wants to be honest about it is we don’t know,” said Dale Porfilio, chief insurance officer at the Insurance Information Institute. But he said it’s clear that litigation funding is a “material contributor” to social inflation. “I don’t think anybody can break it down and say 25% of the cause or 50% of the cause.”
“We know we feel the impact,” agreed David Perez, CUO, global risk solutions at Liberty Mutual. “But identifying exactly which actions are impacted and which aren’t is tough.”
2022 may shine some light on the actual impact of this funding stream as courts fully reopen and cases that lingered through the pandemic resolve.
What is clear is that there are few tools available to counter its expanding influence.
Industry groups are waging a state-by-state battle for laws that would require increased transparency into which cases have backing from these funders and mandate basic consumer protections, but there’s little guarantee that even successful efforts on this front will produce results that stem the tide of rising litigation costs, soaring settlements and nuclear verdicts.
Read the full article on the Slipcase.