Insurance Coverage Threatened by Rising Claims Costs and Legal System Abuse

The insurance industry is facing significant challenges due to the increasing frequency and severity of claims, which are surpassing insurer expectations and inflation rates. This escalation is notably impacting insurance coverage affordability and availability, with Florida and Louisiana experiencing the most acute effects. The Insurance Information Institute’s (Triple-I) latest Issue Brief highlights how legal system abuse and related litigation trends contribute to social inflation, driving up policyholder premiums and causing losses for insurers.

Key points from the brief reveal insured losses continue to outpace inflation, exacerbated by legal system abuse. This term encapsulates various fraudulent or unnecessary tactics employed in insurance claim pursuits, such as claims inflation, frivolous lawsuits, and exploitation of Assignment of Benefits (AOBs). These practices not only prolong and complicate claim settlements but also inflate the costs associated with them, contributing to higher premiums for policyholders.

The report emphasizes the need for increased awareness and regulatory action against third-party litigation funding (TPLF), which often underpins large, windfall-seeking lawsuits. The lack of transparency in TPLF arrangements and their potential to influence case outcomes have drawn legislative attention at both state and federal levels. Despite progress in raising awareness, more efforts are needed to curb legal system abuse and its effects on social inflation.

Florida is spotlighted as a prime example of the consequences of excessive litigation on insurance markets. The state’s homeowners face the highest insurance premiums in the U.S., driven by a combination of high home values, extreme weather events, and a litigation-heavy environment. This situation illustrates the broader challenge of managing unforeseeable legal system abuse activities, which pose significant risks to insurance coverage affordability and availability.