By Jeff Dunsavage, Head of Research Publications and Insights, Triple-I
The United States continues to have the highest tort cost burden among the countries studied by the Institute for Legal Reform (ILR), but the United Kingdom is quickly catching up.
The ILR study found tort costs are rising and often outpacing economic growth and inflation among the countries covered by its research: the United States, the United Kingdom, the European Union’s five largest economies — Germany, France, Italy, Spain, and the Netherlands — Australia, and Canada. From 2014 to 2023, tort costs as a share of gross domestic product (GDP) increased by an average of 7.05% per year across the jurisdictions studied — exceeding average annual GDP growth of 4.63% and average annual inflation of 2.60%.
U.S. tort costs reached 2.15% of GDP in 2023—nearly three times the study average. The United Kingdom, however, experienced the fastest growth, with tort costs rising to 1.22% of GDP in 2023, more than doubling since 2014. If current trends continue, U.K. tort costs will surpass those of the United States as a share of GDP by 2029-2030.
This trend points to a growing economic drag as economic activity is diverted toward litigation-related costs instead of investments that support competitiveness, growth, and opportunity.
“Tort costs are a direct input into loss costs, reserving, and pricing,” said Dr. Michel Léonard, Triple-I’s chief economist and data scientist. “When litigation costs grow faster than the economy underwriting it, that gap eventually shows up in claims severity, reserve adequacy, and ultimately premium. The findings matter globally because the pattern isn’t confined to one jurisdiction.”
Role of lawsuit funders
The study – a collaboration between ILR and Triple-I – found the U.K. trend is being fueled largely by third-party litigation funding (TPLF), which the report says has “become a cornerstone of the U.K. litigation ecosystem.”
TPLF refers to arrangements in which outside investors (often international hedge funds) profit from lawsuits by paying legal costs in exchange for a share of the settlement or judgment. In practice, this incentivizes prolonged and unnecessary cases and can culminate in extreme nuclear verdicts of $10 million or more. Ultimately, TPLF contributes to higher insurance pricing and constrains insurance affordability for consumers and businesses.
Estimates of TPLF’s market size in the United Kingdom range up to £4.5 billion.
Across the five largest European Union economies, tort costs are also trending upward, the study finds.
“Between 2014 and 2023, the EU moved from a patchwork of national collective action regimes toward a more structured and coordinated EU-level framework for collective redress,” the report says.
This shift accelerated in 2020 with the adoption of the Representative Actions Directive (RAD), which requires every member state to establish mechanisms allowing both domestic and cross-border collective actions. Claims have begun to emerge under RAD, and activity is expected to increase — particularly as the Digital Markets Act, Digital Services Act, and the revised Product Liability Directive were added to the list of EU laws actionable under RAD, creating new litigation pathways.
“Litigation funding has become an important enabler of collective actions in Europe,” the report says. “Despite a call by the European Parliament for the European Commission to introduce a harmonized framework for the regulation of TPLF, no action has yet been taken.”
By contrast, momentum against TPLF has been building in the United States as more states move to limit or improve disclosure around the practice.
Learn More:
Third-Party Litigation Funding Reform Advances in Over 20 States
States Take the Lead on Third-Party Litigation Funding Reform
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Attorney Involvement Hurts Plaintiffs Through Slower Settlements, Smaller Net Payouts
