Have you ever looked at a headline about a massive, multi-million-dollar jury award and just thought, "How did it get that high?" It feels like the numbers in liability cases are getting more and more unpredictable, right?
For a long time, we could point to the usual suspects. We expect a certain amount of inflation. Medical care gets more expensive, labor costs go up, and repairing a vehicle costs more today than it did five years ago. That’s all baked into the cake.
But something else is going on. There's a different kind of pressure building in the system, something industry folks call "social inflation." And it's throwing all the old models out the window. As Jayson Taylor over at MSIG USA, who has a background as both an actuary and an underwriter, puts it, severity has just become incredibly unpredictable.
And the data backs this up. A recent analysis from Swiss Re found that social inflation has jacked up liability claims by a whopping 57% in the last decade alone. This isn't just a small bump; it's a fundamental shift, driven by a surge in giant jury awards, some topping $100 million. When that kind of verdict becomes less of a shocking outlier and more of a regular occurrence, the whole system gets thrown off balance.
So, what’s really behind this?
Meet the Hidden Player: Third-Party Litigation Funding
A huge piece of this puzzle, and one we really need to talk more about, is something called third-party litigation funding.
Think of it like Shark Tank, but for lawsuits.
Here’s how it works: An outside investor or a funding company provides the cash to a plaintiff (or their attorney) to cover the costs of a lawsuit. In return, the investor gets a significant chunk of the settlement or award if they win. On the surface, it might sound like a way to level the playing field, helping someone with a legitimate case afford to take on a big company.
But here's the thing: it completely changes the incentives.
Once a lawsuit becomes a financial asset for an investor, the goal is no longer just about making the injured person whole again. Suddenly, there’s a new player at the table whose primary, and often only, goal is to maximize their return on investment.
This changes everything. Cases that might have settled reasonably now get dragged out. Settlement demands get steeper. The focus shifts from fair compensation to hitting a home run for the investors.
Most people involved in a claim just want a fair outcome. Insurers want to pay what's owed and help businesses get back on their feet. Claimants want to be compensated fairly so they can move on with their lives. But when you introduce a third party whose job is to make a profit off the lawsuit itself, the whole dynamic gets warped. And we’re seeing the results of that in these sky-high verdicts.
The Simple Fix We're Missing: A Little Bit of Sunshine
So, how do we bring some balance back to this? The answer is surprisingly simple: transparency.
Right now, the system is pretty one-sided. When an incident happens and a claim is filed, the insurer is legally required to disclose the insured’s policy and its limits. We have to show our cards.
But on the other side of the table? There's no requirement for the plaintiff's side to disclose if a third-party investor is funding their lawsuit.
Imagine you’re on a jury. You’re tasked with making a huge decision about damages. Wouldn't you want to know who all the players are? Wouldn't it be helpful to understand the financial incentives at play? Knowing that a portion of the award isn't going to the injured party, but to a financial firm and the attorneys, might change how you view the case.
We don't need a complicated solution here. A basic, yes-or-no disclosure would be a massive step forward. Just a simple question: "Is this case being funded by a third party?"
More information leads to better, fairer decisions. Over time, just letting some sunshine in would help right-size these outcomes and restore some much-needed balance.
The Good News: Change is Starting to Happen
Thankfully, this isn't just an abstract conversation anymore. People are starting to notice.
This year, Georgia passed a bill that requires this kind of disclosure, and other states are already looking at it as a model. This is a huge first step. For the first time, we’ll get to see what happens when everyone knows who is at the table. Does it change how people negotiate? Does it lead to more reasonable settlements? All eyes are on Georgia to see how it plays out.
And this issue has even broken out of the insurance world bubble. It was recently the subject of a skit on Saturday Night Live. When SNL is making jokes about it, you know the conversation has hit the mainstream. That kind of public awareness is exactly what we need to build momentum for more transparency.
What Happens If We Don't Fix This?
Let’s be honest about the stakes. If we don’t get a handle on this, and litigation funding continues to push verdicts higher and higher, the excess casualty market is going to come under serious pressure.
We haven't seen a truly "hard market" in excess casualty since the 1980s. That’s a situation where coverage becomes so expensive and hard to find that even businesses willing to pay can't get the limits they need. I don't think we're headed there just yet, but it's the worst-case scenario.
If things keep going this way, affordability and availability of crucial insurance coverage could become a real problem for businesses everywhere. The goal for all of us should be to make sure that doesn't happen.
How You Can Be a "Good Risk" in a Tough Market
While we wait for more states to follow Georgia’s lead, what can you, as a broker or a risk manager, do right now?
First, just be aware. Recognize that litigation funding isn't some theoretical concept; it's a real factor influencing claims outcomes today. Understanding this new reality is the first step.
Second, and this is always critical, is to communicate. Talk to your underwriters early and often. If you know your insurance tower needs to be restructured, if your company's exposures are changing, or if you're worried about your renewal, don't wait. Bring your underwriters into the conversation.
In a challenging market, that partnership is everything. No one wants surprises. At the end of the day, we're all trying to get to a fair place. The more transparency we can have between businesses, their brokers, and their insurers, the better off we'll all be. And hopefully, soon, we'll have that same level of transparency inside the courtroom, too.
