Insurance Industry Faces Record-High Claims Costs Due to Legal System Abuse

Legal system abuse is driving insurance claims costs to unprecedented levels, especially in liability lines, causing widespread disruption in the industry. Frivolous lawsuits, inflated claims, pervasive attorney advertising, and third-party litigation funding (TPLF) contribute to escalating costs. TPLF, where investors fund lawsuits for a share of settlements, encourages prolonged litigation and higher payouts, complicating insurers’ ability to predict and control costs.

Dale Porfilio of Triple-I and Luke Bills from Liberty Mutual emphasize the severe impacts on the market, noting insurers’ withdrawal from certain lines and the subsequent challenges faced by independent agents. As claims costs and premiums surge, agents struggle to sell coverage and insurers limit the risks they cover, reducing market availability. Agents are pivotal in combating this issue by educating clients, discussing risk management, and guiding them through the claims process. Proactive engagement and communication are crucial in helping clients navigate legal system abuse and maintain trust in an increasingly complex landscape.