Third-party litigation funding is a burden for insurers and policyholders
The proliferation of court cases seeking large monetary awards from insurance carriers is becoming an increasingly heavy burden for the Property and Casualty insurance industry. Third-party litigation funding (TPLF) of cases, in particular, has become a significant issue for insurance carriers.
TPLF is a side financial deal in which a third party, who has no claim in the legal dispute, provides funding to support the plaintiff’s legal claim. In return, the third-party funder receives a significant portion of the proceeds if the case is successful. It transfers the financial risk of a lawsuit from the plaintiff to an investor.
This practice can ultimately harm policyholders because of the resulting financial pressure it puts on carriers to increase premiums. The increased litigation can also lead to reduced access to coverages in particular markets.
According to Accenture, the top 50 insurance carriers in 2022 spent on average $500 million on litigation expenses. These expenses drive up insurance premiums and leave policyholders covering the costs. In addition, AM Best Financial reports show that between 2018 and 2023, litigation management costs for the combined Property & Casualty industry increased by 19%, amounting to an increase of $4-5 billion.
Leader’s Edge magazine recently published an editorial from Nationwide President of Commercial Lines, E&S and Specialty Insurance Russ Johnston about the dark money behind TPLF arrangements and how it is impacting agents and insurance customers. You can read his editorial here.
There are measures that businesses can take to help reduce risks and lessen the likelihood of an incident that could lead to a court case. This begins with risk management strategies that address specific organizational needs. Nationwide’s Loss Control Services can help businesses plan and prepare to help reduce losses. Share resources on mylosscontrolservices.com and help your clients keep their workers safe and operations running smoothly.