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The Insurance Information Institute (Triple-I) recently released a report highlighting how excessive litigation exacerbates the long-standing issue of rising auto insurance costs.

The report outlines how dangerous driving conditions and economic factors have steadily driven up insurance expenses over the years. However, the situation is worsened by aggressive attorneys who escalate litigation costs through various tactics.

Triple-I investigates the strategies employed by these attorneys to increase lawsuits, raise costs for defendants, and secure sizable payouts. They often resort to aggressive advertising methods like billboards, TV ads, and social media, luring clients with promises of large settlements.

Sean Kevelighan, CEO of Triple-I, emphasises the real cost behind these billboard attorneys, stating, “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.”

“There are multi millions 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,” Kevelighan adds.

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A significant contributor to the problem is third-party litigation funding (TPLF), a global industry where hedge funds invest in lawsuits in exchange for a share of the settlement or judgement. The lack of transparency in TPLF involvement makes it challenging to hold attorneys and their clients accountable.

Dale Porfilio, Chief Insurance Officer at Triple-I, points out, “We’re seeing publicly traded and private third-party litigation funders getting more than 20% in investment yield.”

The report also highlights the staggering costs of legal system abuse in states like Louisiana, costing residents over $1,100 annually. Louisiana is ranked as the least affordable state for auto and homeowners insurance due to its litigation environment.

Similarly, Florida accounts for a staggering 71% of the country’s homeowners’ insurance lawsuits annually, yet only 15% of all US homeowners’ insurance claims are filed within the state each year. This contributes to its status of having the highest average property insurance premiums in the US.

Triple-I reports that since 2019, 10 insurers operating in Florida have gone bankrupt due to the high costs of legal defence. Others have opted to leave the state, limit their offerings, or not renew policies due to concerns about the legal climate.

In an effort to address these issues, Florida implemented new laws aimed at reducing legal system abuse and attracting new insurers. As a result, seven new insurers have been approved by the state’s insurance regulator.

Furthermore, the state-backed Citizens Property Insurance Corp. has transferred nearly 300,000 policies to the private market since October 2023, indicating a willingness among Florida’s homeowners’ insurers to take on more risk in a more favourable marketplace.

In a report by analysts at Morgan Stanley, they also address this issue, estimating that social inflation led to $13.3-24.5 billion in excess losses for commercial auto liability from 2013-2022, accounting for 7-13% of total losses in the period. As a result, insurance companies have been compelled to raise premiums on commercial auto insurance policies.

This highlights the broader impact of social factors on insurance costs, underscoring the importance of addressing issues such as excessive litigation and third-party litigation funding to mitigate these rising expenses.

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