Litigation Funding And Social Inflation

Property and casualty insurance executives are waving red flags about litigation funding, which they believe is the primary driver for the biggest emerging risk they’re facing — social inflation.

“I would bold and underline that,” Matt Wolfe, president of Aon Reinsurance Solutions Canada, said during an Insurance Institute of Ontario webinar in September. “[Social inflation] is, I think, the Number 1 topic of discussion, typically in the U.S. insurance market.”

Social inflation describes the rise of insurance claims costs because of increased legal costs.

Litigation is increasingly expensive for a variety of reasons; among them, more litigation, more plaintiff-friendly judgments, or higher jury awards. Wolfe uses the example of an auto insurance loss that used to settle for $2 million now settles for upwards of $8 million.