Triple-I: Insurance rates soar on investment strategy, legal system abuse
Between 2019 and 2022, homeowners watched the cost of insurance spike 55% and auto insurance rates swelled 46%.
Rising investment into third-party litigation funding (TPLF) has policyholders paying more to keep their homes and autos insured, according to a study from the Insurance Information Institute (III).
Between 2019 and 2022, homeowners watched the cost of insurance spike 55% while personal auto insurance rates swelled 46% over the same time period.
While TPLF uses third-party dollars to fund unrelated lawsuits and turn a profit from the winnings, the mounting litigation has led to overall increases in costs and time to settle insurance claims.
Dale Porfilio, chief insurance officer at III, said, “We have been educating and informing consumers about our growing concern with third party litigation funding within the broader umbrella of what we refer to as legal system abuse.”
“Our growing concern with third-party litigation funding is based on the change in the motivation of the investors,” he continued. “TPLF can be an effective tool for judicial good. Yet, in recent years, TPLF has devolved in unfortunate ways. Without any direct ties to litigated cases and minimal transparency, institutional investors and even sovereign nations are contributing significant amounts of capital toward litigation for the sole intent of making a profit.”
States like New York, Indiana, and Montana are currently taking steps to increase transparency in the process. Indiana enacted House Bill 1124 last year, requiring a plaintiff to disclose whether they’ve entered into a TPLF agreement, while Montana enacted a similar law in 2023 with Senate Bill 269.
Data compiled by the Swiss Re Institute showed the $17 billion brought in from global litigation funding in 2022 is projected to balloon to $30 billion by 2028.
“Without transparency, we are not able to provide deep data-driven insights about TPLF’s impacts on consumers and the insurance industry,” Porfilio said.
Prices must reflect the expected loss payments and expenses for each policyholder, he added: “This means prices need to rise when losses or loss adjustment expenses increase.”
According to the III study, the industry has also paid significantly higher losses on surging replacement costs for autos, homes and businesses, record-setting losses from natural catastrophes, litigation costs, crime, and risky behaviors like distracted driving.
The industry now pays out an average of $1.02 for every $1.00 of premium collected, with rate increases expected to continue into 2025.
Meanwhile, replacement costs for all P&C lines rose 40.42% from 2019 to 2022 as Commercial Property lines jumped 39.85%.
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