The Insurance Information Institute (Triple-I), the trusted source for data driven insights on risk and insurance, today released its latest issues brief highlighting how excessive litigation is compounding a years-long problem of rising auto insurance costs. As dangerous roads and driving conditions as well as economic costs have been on the rise for several years, the challenges presented by overzealous billboard attorneys are exasperating the situation, as insurers last year on average paid out more than $1.10 for every $1 in premium they collected, according to the brief.

Legal System Abuse – State of the Risk examines the tactics used to initiate more lawsuits, to drive up a defendant’s litigation expenses and settlement payouts, and to secure outsized monetary awards after jury verdicts. Plaintiff attorneys often use aggressive marketing and advertising techniques to attract potential plaintiffs, the issues brief notes. These practices are prevalent nationwide as plaintiff’s attorneys hint at the promise of a financial windfall for their clients through multiple channels – highway billboards, television advertisements, and social media.

“There are real costs behind what we all know and see plaguing our roads with promises of settlement dollars, as billboard attorneys are racking up fees, and consumers are found to be getting less and less. The price of insurance is the effect, not the cause of risk, and there must be more work done to curb legal system abuse, as auto insurers – both personal and commercial – are seeing significant increases in claims costs when attorneys enter into the picture,” stated Sean Kevelighan, CEO, Triple-I. “What’s more, there are multimillions of dark money investor dollars entering into the fray to try and get their share. Some of these investors are sovereign funds, which may very well pose increased national security risks.”

Third-party litigation funding (TPLF), a multi-billion-dollar global industry where hedge funds and other financiers invest in lawsuits in exchange for a percentage of any settlement or judgment, allows plaintiff’s attorneys to finance more litigation through dark money. Few states outside of either Montana or Indiana even require the disclosure of a third-party litigation funder’s involvement in a civil lawsuit. An effort to implement TPLF regulations in Florida this year appears to have stalled in the state’s legislature due to efforts of the trial bar. This lack of transparency makes it difficult to hold plaintiff attorneys and their clients accountable to good faith standards, the issues brief explained.

“We’re seeing publicly traded and private third-party litigation funders getting more than 20% in investment yield. Where else can you get that kind of return?” said Dale Porfilio, FCAS, MAAA, chief insurance officer, Triple-I.

Legal system abuse in Louisiana costs every resident more than $1,100 annually, according to an analysis by the American Tort Reform Association (ATRA). The state’s litigation environment was also cited by the Insurance Research Council (IRC) when reporting how Louisiana is the least affordable U.S. state for both personal auto and homeowners insurance.

Florida accounts for an annual average of nearly 71 percent of the nation's homeowners' insurance lawsuits, yet only 15 percent of all U.S. homeowners' insurance claims are filed within the state each year, according to Florida's Office of Insurance Regulation. It is one of the reasons Florida has the highest average property insurance premiums in the nation. Since 2019,10 insurers who conducted business in Florida have become insolvent due to the excessive cost of legal defense. Several other carriers either voluntarily left the state, limited the number of new homeowners insurance policies offered to Floridians, or reduced their risk via the issuance of non-renewals due to the state’s legal system abuse environment.

Florida enacted new laws last year to reduce legal system abuse and to attract new insurers to replace those who departed or reduced their market share. Seven new insurers have been approved by the state’s insurance regulator while the state-backed Citizens Property Insurance Corp. has moved nearly 300,000 policies to the private market since October 2023 as Florida’s homeowner’s insurers are willing to assume more risk in an improving marketplace.

RELATED LINKS:

IRC: Social Inflation: Evidence and Impact on Property-Casualty Insurance (2020)

Triple-I Article: How Legal System Abuse Drives Social Inflation

Triple-I Paper: Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance

About the Insurance Information Institute

With more than 50 insurance company members — including regional, super-regional, national, and global carriers — the Insurance Information Institute (Triple-I) is the #1 online source for insurance information in the U.S. The organization’s website, blog and social media channels offer a wealth of data-driven research studies, white papers, videos, articles, infographics and other resources solely dedicated to explaining insurance and enhancing knowledge.

Unlike other sources, Triple-I’s sole focus is creating and disseminating information to empower consumers. It neither lobbies nor sells insurance. Triple-I offers objective, fact-based information about insurance – information that is rooted in economic and actuarial soundness. Triple-I is affiliated with The Institutes Risk and Insurance Knowledge Group.

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“There are real costs behind what we all know and see plaguing our roads with promises of settlement dollars, as billboard attorneys are racking up fees, and consumers are found to be getting less and less." @III_SeanK