In the United States, the courts — which play a vital role in our legal system — interpret the laws, resolve disputes, and provide remedies for individuals and businesses. However, in recent years, the legal system has faced significant challenges from plaintiff attorney practices that have reportedly increased costs, settlement times, and inflated verdicts. These practices are referred to as legal system abuse.

With recent annual returns surpassing 20%, it’s not difficult to see why investors are making third-party litigation funding (TPLF) one of the fastest-growing alternative asset classes. Litigation can be expensive, but a stake in a winnable lawsuit can be a valuable asset. So, investors, looking to diversify their financial portfolios, front the costs. However, as economists often remind us, there is no free lunch. Evidence indicates that for the end results of this capital infusion into the litigation industry, insurers and policyholders ultimately bear the brunt of the tab.

This paper discusses the combined impact of social and economic inflation because the study’s actuarial methodology cannot differentiate between underlying drivers. Social inflation is defined as “excessive inflation in claims” for the purposes of this paper and is a term primarily used by insurance industry professionals. It is closely related to “legal system abuse,” which the Insurance Information Institute (Triple-I) defines as policyholder or plaintiff attorney practices that increase the costs and time required to settle insurance claims to the detriment of consumers.

In a previous CAS Research Paper, we described a method for using industrywide loss development factors to detect circumstances consistent with descriptions of a phenomenon known as social inflation. The paper focused primarily on commercial auto liability insurance as defined in Schedule P of the Annual Statement. We estimated that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019.

The phenomenon of social inflation has garnered a great deal of attention in the property and casualty (P&C) insurance industry. The term defies strict definition, though it is widely acknowledged to involve excessive growth in insurance settlements. We examine evidence for its existence in standard industrywide claims triangles through 2019. The focus is on commercial automobile liability insurance, though other annual statement lines of business are examined as well. We find development patterns in commercial auto liability are consistent with most descriptions of social inflation.

Three-quarters of consumers have had their personal information lost or stolen in some form of cybercrime. Twenty-eight percent of consumers had a social media account hacked. In addition, 23% of consumers had personal information compromised in a data breach, and 14% of consumers experienced an online attack. Yet 56% of insurance agents reported that their customers don’t understand or agree with the value of cyber insurance.

The study, Getting Granular to Find Lower-Risk Properties Amid Wildfire Perils, comes at a critical time as California continues to grapple with regulatory obstacles related to actuarially sound underwriting and pricing. Using Guidewire HazardHub predictive Wildfire Score methodology, Triple-I’s research demonstrated how granular geospatial data analysis can identify lower-risk properties, even in areas traditionally considered high-risk.

Participation in a group captive can help companies save on insurance costs and provide access to extensive risk- management resources, including industry-specific expertise. These attributes are a source of value in the best of times, and today’s inflationary conditions may increase their appeal for certain types of companies.

The main drivers of rising flood losses are related to economic growth and urbanization. Coastal development puts more property at risk and eliminates ways for water to flow or to be absorbed. Other factors – such as aging or absent flood-control infrastructure – also affect losses. Extreme weather and rising sea levels exacerbate the threat.

While awareness of weather and climate risk has grown in recent decades and much action is being taken, a lot of work remains to establish a mindset focused on resilience and pre-emptive mitigation.