Why Insurance Company Profits, Not Consumer Legal Funding, are Increasing Costs for Consumers

At the beginning of this year, the insurance industry was still loudly complaining that third-party litigation financing (TPLF) was driving up the cost of insurance.¹ Insurers define TPLF as including consumer funding, even though the two are not the same.²

In response, Cartiga published an article showing that while consumer legal funding can and does increase legitimate recoveries by claimants on their legal claims,³ the insurance industry’s complaints about TPLF causing increased auto insurance premiums are wrong.⁴

Now that insurers are issuing their quarterly financial reports for 2024, the inaccuracy of their complaints has been confirmed. It is clear from the insurers’ own financial results that their increases in premiums have not been caused by TPLF. In fact, insurers’ cost of personal motor vehicle claims has dropped. The higher premiums being charged have been caused instead by the insurers’ drive for outsized profits from their motor vehicle insurance businesses.

For example, three of the largest motor vehicle insurers reported the following dramatic increases in profits in the last quarter:

• One company announced it had quadrupled its second-quarter profits based partly on significant pricing increases in its personal auto insurance premiums. Its “combined ratio” was down to 91.9%. (A combined ratio of less than 100% means the insurer earned more in premiums than it paid out in claims.)⁵
• A second company’s quarterly auto insurance results reflected higher profits based on higher premiums and a recorded auto insurance combined ratio of 96.0, reflecting improved underlying loss experience.⁶
• A third company’s quarter ended with a $1.9 billion underwriting profit in its auto insurance business, a significant increase compared to the same quarter last year. This profit reflected a 7.3% increase in premiums and a loss ratio of 72.5%, a decrease of 10.5 percentage points compared to 2023.⁷

In short, these results show that the insurers’ mandate for higher profitability, not TPLF, is driving up the cost of insurance, which insurers have identified as a problem for consumers.

More broadly, the insurance industry has argued that TPLF harms consumers directly because consumers allegedly pay a high cost for the legal funding they receive. However, the evidence demonstrates that this argument is incorrect: the cost of consumer legal funding is reasonable relative to alternative sources of money. In any event, the cost consumers pay is outweighed by the benefits they receive from the funding.⁸ The insurers’ latest financial reports add another reason why the insurers’ argument is wrong: their own financial results show that the actual harm to consumers’ wallets is coming from the insurers’ profit-driven increases in motor vehicle insurance premiums. The insurers’ soaring premium rates are creating upward pressure on overall inflation. As recently reported, the consumer price index, a key measure of inflation, rose 3% in June, down from 3.3% in May. However, that CPI decline would have been more significant if not for an eye-popping 19.5% increase in motor vehicle premiums compared to last year.⁹

Conclusion

Insurers are understandably unhappy that consumer legal funding levels the litigation playing field for plaintiffs and can result in higher recoveries when consumers reject “lowball” settlement offers from insurance companies that are below the actual value of plaintiffs’ legal claims.¹⁰ However, insurers cannot complain that consumer legal funding is causing their legitimate insurance costs to increase when their own financial statements show otherwise.

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This article is for marketing purposes only, does not constitute legal advice, and should not be relied upon as legal advice.

1. i Erich Bublitz, Why Litigation Financing Should Be Driving the Industry Toward E&S Coverage to Buffer the Blows of Social Inflation (April 7, 2023), https://riskandinsurance.com/third-party-litigation-financing-impact-on-the-e-and-s-market/; https://www.propertycasualty360.com/2023/04/20/litigation-funding-blamed-for-spiking-insurance-settlements-but-is-that-really-true-414-237168/; Insurance News https://www.insurancebusinessmag.com/us/news/breaking-news/apcia-calls-for-regulation-of-thirdparty-litigation-financing-in-florida-480541.aspx; see also https://www.lexisnexis.com/community/insights/legal/capitol-journal/b/state-net/posts/state-lawmakers-wade-into-third-party-litigation-funding; https://www.theclm.org/Magazine/articles/addressing-legal-system-abuse-tops-apcia-2024-priority-list/2799; https://content.naic.org/cipr-topics/social inflation#:~:text=Disclosure%20and%20regulation%20of%20third, TPLF%20agreements%20in%20civil%20cases; https://www.burnsandwilcox.com/insights/pc-report-2024-forecast/; Jim Lynch, Dave Moore, and Dale Porfilio, Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance, https://www.iii.org/sites/default/files/docs/pdf/triple-i_auto_inflation_trends_2023.pdf.
2. ii TLPF pays for the costs incurred in connection with the litigation; by contrast, consumer legal funding provides funds to claimants to help them meet personal, medical, and household needs while they pursue their legal claims.
3. iii https://cartiga.com/articles/consumer-funding-increases-claimants-recoveries-in-personal-injury-cases/; https://cartiga.com/articles/winning-case-for-consumer-legal-funding.
4. iv https://cartiga.com/articles/why-are-insurers-so-worried-about-consumer-legal-funding/.
5. v https://finance.yahoo.com/news/progressives-quarterly-profit-surges-strong.
6. vi https://www.allstateinvestors.com/static-files.
7. vii https://coverager.com/geico-ends-q1-with-a-big-profit/.
8. viii https://cartiga.com/articles/why-the-benefits-of-cartigas-consumer-legal-funding-outweigh-the-costs/; https://cartiga.com/articles/winning-case-for-consumer-legal-funding.
9. ix https://www.cnbc.com/2024/07/11/Here’s the inflation breakdown for June 2024 — in one chart (cnbc.com).
10. x https://cartiga.com/articles/consumer-funding-increases-claimants-recoveries-in-personal-injury-cases/; https://cartiga.com/articles/winning-case-for-consumer-legal-funding/.