The Insurance Information Institute (Triple-I), an industry-backed research group, released an issues brief on Monday asserting that excessive litigation is compounding the problem of rising auto insurance costs. The group said that dangerous roads, increased driving costs, and overzealous attorneys are exacerbating the situation, with insurers paying out more than $1.10 for every $1 in premiums collected last year.
Aggressive Attorney Marketing
According to the Triple-I brief, titled “Legal System Abuse – State of the Risk,” plaintiff attorneys often use aggressive marketing techniques, such as highway billboards, television advertisements, and social media, to attract potential clients with the promise of big payouts. The Wall Street Journal reported that nearly 800,000 television advertisements for mass tort cases ran in 2023, with costs exceeding $160 million. Sean Kevelighan, CEO of Triple-I, stated, “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.”
Third-Party Litigation Funding
The Institute also highlighted the role of third-party litigation funding (TPLF), a multi-billion-dollar global industry where hedge funds and other financiers, including sovereign wealth funds owned by foreign governments, invest in lawsuits in exchange for a percentage of any settlement or judgment. Triple-I said this practice allows attorneys to finance more litigation through “dark money,” with only a few states requiring the disclosure of TPLF involvement in civil lawsuits. According to the Triple-I’s brief, portfolio loans directly to law firms can range anywhere from $20 million to $100 million, with returns for funders expected to climb as high as 20 percent, driving up premiums for consumers.
State-Specific Examples
Triple-I’s issues brief cited examples of legal system abuse in Louisiana and Florida. In Louisiana, the American Tort Reform Association estimates that legal system abuse costs every resident more than $1,100 annually, with the state being the least affordable for both auto and homeowners insurance. According to Florida’s Office of Insurance Regulation, Florida accounts for nearly 71% of the nation’s homeowner’s insurance lawsuits but only 15% of all U.S. homeowner’s insurance claims. As a result, Florida has the nation’s highest average property insurance premiums, with 10 insurers becoming insolvent since 2019 due to the high cost of legal defense.
Triple-I noted that Florida enacted new laws last year to reduce legal system abuse and attract new insurers. Since then, seven new insurers have been approved by the state’s insurance regulator, and the state-backed Citizens Property Insurance Corp. has moved nearly 300,000 policies to the private market as insurers become more willing to assume risk in an improving market.
Calls for Transparency and Regulation
Triple-I’s brief argues that legal system abuse drives insurance costs beyond the general inflation rate. The brief cited a study indicating that these factors, combined with others beyond general economic inflation, potentially outpace inflation in the overall economy by two to three percent per year. Triple-I called for more transparency and regulation of litigation funding to improve insurance affordability and availability for consumers.
The full press release can be found on the Insurance Information Institute’s website as “Legal System Abuse Adding to Increasing Auto Insurance Costs, Creating A New Asset Class of Investors Betting on Litigation“, along with the detailed brief entitled, “Legal System Abuse: State of the Risk”.
About the Insurance Information Institute
The Insurance Information Institute has more than 50 insurance company members — including regional, super-regional, national and global carriers — and claims to be the #1 online source for insurance information. Its 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, its sole focus is creating and disseminating information to empower consumers. The Insurance Information Institute neither lobbies nor sells insurance. It provides objective, fact-based information about insurance – information that is rooted in economic and actuarial soundness.
The Insurance Information Institute is affiliated with The Institutes Risk and Insurance Knowledge Group. Together, they seek to make a difference in society and the lives of individuals, families and businesses by providing knowledge, education, resources, thought leadership and global collaboration on risk management and insurance.
