Reinsurer Says U.S. Should Regulate $17 Billion Litigation Funding Industry
By Jim Sams
Swiss Re says in a new report that third-party litigation funding (TPLF) is raising the number of "outsize" legal awards and adding to the increasing growth loss ratios for medical malpractice, excess liability, commercial auto, and general liability. Worldwide, litigation funding is now a $17 billion industry — and more than half of those funds are being spent in the United States, the report said. "We see TPLF as a contributing factor to the trend of social inflation in the U.S.," the report notes. "U.S. general liability and commercial auto lawsuit data show a strong rise in the frequency of multi-million-dollar claims over the past decade." According to Swiss Re, litigation funding is contributing to the rise in verdict sizes in the United States. The share of verdicts greater than $5 million rose from about 29% of liability cases to 36% between 2010 and 2019, while the percentage for vehicle negligence claims rose from about 21% to 30%. The average award for cases with awards greater than $1 million increased to more than $10 million from $8 million for general liability and to $8 million from $6 million for vehicle negligence. As a result of the larger verdicts, there are higher loss ratios for insurers and rising premiums. Last year, general liability rates increased 7.3%, the report says, while rates for medical professional liability rose 8.8%, directors and officers 15.8%, and umbrella rates 22.6%. Swiss Re is recommending greater regulation of third-part litigation funders, noting that 25 out of 94 U.S. district courts now have rules in place that require disclosure of litigation funding agreements in civil cases. To protect consumers from excessive interest rates, the reinsurer also says lawmakers should subject litigation funders to anti-usery regulations. "We believe litigation funding contracts should be subject to comparable protections as other consumer financial products, that benefit from enhanced consumer protection," the report says.
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