Rising costs are hitting nearly every part of daily life, from groceries to construction materials. Both households and business owners feel the pressure, and the reasons behind these increases are rarely simple. Many of these cost drivers operate behind the scenes, shaping prices in ways most people never see. Insurance costs follow the same pattern, climbing across auto insurance, homeowners insurance, and business policies, even for those with no recent claims.
Social inflation is one of the hidden drivers behind rising insurance costs. Legal trends, not simply physical risks, are pushing claim costs higher. Third-party litigation funding is a major factor in this change. Policyholders looking for potential savings need to understand how this funding drives higher insurance premiums.
What Is Third-Party Litigation Funding and Why Is It Growing?
Third-party litigation funding allows outside investors to fund lawsuits in exchange for a share of any settlement or court award. Plaintiffs get the money they need to pursue their case. Investors take the risk, and they profit if the case succeeds.
This model has grown quickly in recent years. Numerous factors drive this growth:
- Investors pursue higher returns than traditional fixed-income markets.
- Large legal settlements create attractive upside potential.
- Law firms use funding to support complex or extended litigation.
- Limited and inconsistent regulation adds flexibility to the market.
Tax rules vary, but many funding deals are structured to provide investors with tax advantages. This feature makes the market more attractive to outside capital.
How Does Litigation Funding Increase Insurance Costs?
Funded lawsuits usually take longer, require more expert witnesses, and demand higher settlements. These factors raise defense bills and final payouts. Even if liability does not change, the total cost to resolve the claim goes up. Plaintiffs with more resources can push for higher settlements and use more aggressive legal strategies.
Carriers respond by raising prices across all policies. The impact does not rest with a single claim or policyholder. It spreads through entire groups of business and personal insurance.
The pattern is simple:
- External funding supports larger and longer lawsuits.
- Larger lawsuits lead to higher settlements and legal bills.
- Higher costs increase overall insurer losses.
- Insurers raise premiums to keep stable loss ratios.
This trend is why premiums can rise even if you have not filed a claim. Underwriters now expect higher payouts, and this perspective changes how they set limits, judge risk, and price coverage for all policyholders.
What Does This Mean for Businesses and Individuals?
Litigation funding affects more than just court cases. It shapes daily insurance decisions for businesses and individuals.
For Businesses
Businesses now face more pressure on liability coverage. Industries with frequent public contact or higher risks, such as construction, transportation, retail, and property ownership, feel it the most.
Claims that once settled quickly can now turn into complicated legal battles, affecting:
- General liability premiums for property insurance
- Commercial auto insurance policies
- Umbrella and excess liability pricing
- Contract requirements that demand higher limits
Higher claim costs can affect your insurance policy rates over time, with repeated or severe claims influencing not only premiums but sometimes the ability to procure coverage.
For Individuals
Personal insurance follows the same trends. Auto accidents and liability claims now pose greater financial risks due to larger settlements and longer lawsuits, leading to:
- Increased auto insurance premiums
- Rising homeowners liability costs
- A greater need for personal umbrella insurance
With unpredictable judicial outcomes, the risk of a single serious claim exceeding standard liability limits is now higher. For instance, even a homeowner with a modest income can be at risk if they have a low mortgage balance and considerable accumulated home equity.
Practical Steps To Protect
You cannot control legal funding trends, but you can prepare for them:
- Review liability limits to ensure they reflect current realities.
- Consider umbrella coverage to extend protection beyond primary policies.
- Evaluate deductibles in relation to your financial tolerance.
- Address operational risks that could lead to claims, property damage, or liability events.
What Can Policyholders Do as Insurance Trends Shift?
Third-party litigation funding is part of a bigger change in how claims develop and resolve. Social inflation continues to drive up costs, and that pressure shows up in your insurance bill.
Policyholders who act early are better prepared for these changes. Business owners should review their business insurance contract requirements and compare policy limits and coverage needs before they purchase insurance. Individuals should take a similar approach by reviewing homeowners, auto, umbrella, and other personal policies to ensure that the coverage aligns with current financial and household circumstances.
As insurance costs continue to rise, consumers and businesses alike should take a closer look at their insurance policy, from homeowners insurance and property insurance to auto insurance policies and broader liability coverage. Working with a trusted insurance company or experienced agents can help customers compare options, understand limits, and identify potential savings through bundling strategies, such as combining home and auto coverage. While discounts, reported savings, and average savings can vary based on individual circumstances, factors like risk, property value, and vehicle exposure all play a role in determining premiums and overall costs. Reviewing policy details, exclusions, and coverage limits ensures you have the right protection in place—while also giving you quick access to important information, claims support, and payment options when you need them most.
If your premiums are rising or you have not revisited your policies lately, now is the time to act. Contact Brooks, Todd & McNeil to review your policies and ensure they align with today’s risks.
About the Author
Stephen G. Todd, CPCU CIC is owner, President and CEO of Brooks, Todd & McNeil, bringing more than three decades of experience across underwriting, claims, and agency leadership. He began his career with Travelers Insurance Company, where he held roles in Home Office Finance, National Account Claims litigation, before serving as a commercial lines underwriter with American States Insurance Company. Since joining Brooks, Todd & McNeil in 1991, Stephen has led key operational areas and helped drive innovation, including the development of the insurance industry’s first real-time personal lines comparative rating system. A recognized industry leader, he has served on numerous carrier advisory councils and remains actively involved in both professional and community organizations.
About Brooks, Todd & McNeil
Since 1839, the independent agents at Brooks, Todd & McNeil have been pleased to offer our community policies from a variety of providers. To learn more about our products and services, contact us today at (800) 448-4567.