Unmasking Legal System Abuse: The Hidden Driver of Rising Insurance Costs

The Growing Threat of Legal System Abuse

The increasing frequency and severity of claims costs beyond insurer expectations continue to threaten insurance coverage and affordability. Triple-I’s latest Issue Brief, Legal System Abuse – State of the Risk, describes how trends in claims litigation can drive social inflation, leading to higher insurance premiums for policyholders and losses for insurers.

Key Takeaways from the Issue Brief

Insured losses continue to exceed expectations and surpass inflation, notably impacting coverage affordability and availability in Florida and Louisiana. In promoting the term “legal system abuse”, Triple-I seeks to capture how litigation and related systemic trends amplify social inflation. Progress has been made toward increased awareness about the risks of third-party litigation funding (TPLF), but more work is needed.

Florida: A Case Study in Excessive Litigation

While several states, such as California, Colorado, and Louisiana, are experiencing a drastic rise in the cost of homeowners’ insurance, this brief discusses Florida. Property insurance premiums there rank the highest in the nation. Several insurers facing insurmountable losses have stopped writing new policies or left the state in the last few years. In some areas, residents are leaving, too, because of skyrocketing premiums. Excessive claims litigation isn’t a new issue for insurers, but it can work with other elements to shift loss ratios and disrupt forecasts, rendering cost management more challenging.