Dr. Michel Léonard, Triple-I Chief Economist, Data Scientist and host of the Insurance Information Institute's All Eyes on Economics podcast, discussed the growing concerns surrounding third-party litigation funding (TPLF) and its impact on the insurance industry.
"This is one of those great cases where the interest carriers, the insurance industry, as members of the community, are just greatly aligned with that of our insurers," said Dr. Léonard. He emphasized that TPLF is not only driving up litigation costs but also placing significant financial pressure on both insurers and policyholders. "At the end of the day, increases the pressure that brings up our premium are also those things. So we end up paying, our insurers end up paying and so forth, and the money isn't allocated there to the risk as it should be."
Léonard's comments align with industry reports that link the rise of TPLF to higher premiums. By providing financial backing to plaintiffs, TPLF enables longer and more complex legal cases, which often result in larger settlements and verdicts. These costs are then passed on to insurance carriers and, ultimately, to policyholders in the form of increased premiums.
The lack of transparency in TPLF arrangements exacerbates the problem, as insurers are often unaware of the involvement of third-party funders in legal disputes. This hidden influence drives up the costs of legal claims, distorting the civil justice system and undermining the intended purpose of insurance risk management.
According to the Insurance Information Institute (Triple-I), key factors driving up insurance costs include third-party litigation funding (TPLF), aggressive plaintiff attorney advertising, higher attorney contingency fees, and the erosion of caps on damages. These elements collectively increase the volume and cost of litigation, leading to higher premiums for consumers.
U.S. Congress indicates that during the five-year period ending in September 2023, private passenger auto insurance premiums have increased by 14.6 percent and commercial auto insurance premiums by 5.5 percent.