Consumers Worry Lawsuits Drive Up Insurance Costs: What It Means for You

Are you concerned about the rising cost of insurance? You’re not alone. A recent survey reveals that a significant majority of consumers believe that excessive lawsuits are a major factor driving up insurance premiums, even if they’ve never filed a claim themselves. In fact, a survey from the Insurance Information Institute and Munich Reinsurance America estimates that excessive lawsuits drive up insurance premiums by $6,664 for a family of four. This article explores why consumers worry lawsuits drive up insurance costs and what it means for you.

The Growing Concern Over Lawsuit Abuse

According to a recent survey by the Independent Insurance Agents & Brokers of America (Big “I”), 64.3% of respondents are concerned about how excessive lawsuits increase their premiums, and 80.5% believe that the legal system is used in ways that unfairly drive up insurance costs. This widespread concern highlights a growing awareness of the impact of litigation on everyday expenses.

“Consumers are absolutely correct,” says Charles Symington, Big “I” president & CEO. “They are paying the price for unnecessary lawsuits in the form of higher insurance costs for their households.”

How Lawsuits Impact Insurance Premiums

Several factors contribute to the rising cost of insurance due to lawsuits:

Increased Claim Payouts: Lawsuits often result in larger claim payouts, which directly increase insurers’ costs.
Higher Legal Expenses: Insurers incur significant legal expenses defending against lawsuits, regardless of their merit.
Lengthy Settlement Times: Lawsuits can prolong the settlement process, leading to additional costs for insurers.

These added costs are then spread across all policyholders in the form of increased premiums, affecting even those who have never filed a claim.

The Role of Third-Party Litigation Funding

One of the key contributors to the rise in insurance lawsuits is third-party litigation funding (TPLF). This practice involves outside investors financing lawsuits in exchange for a portion of the settlement or judgment. TPLF can encourage more litigation and larger settlements, further driving up insurance costs.

A survey found that around 40% of respondents reported not knowing anything about TPLF. Some argue that this lack of awareness makes it harder for the public to understand how certain legal strategies can steer cases toward larger settlements, leading to a cycle where more claims end up in court instead of being settled early, which can raise costs for insurers and, eventually, for the broader public.

Who Benefits from Lawsuits?

Consumers also express skepticism about who truly benefits from lawsuits against insurers. Nearly three-quarters (73%) say attorneys and law firms profit most, compared to only 30.9% who believe consumers with valid claims benefit. This perception fuels the concern that the legal system is being exploited for financial gain, rather than serving justice.

What Can Be Done?

Consumers aren’t just aware of the problem; they’re ready for change. The survey reveals overwhelming demand for action to rein in abusive litigation and restore fairness to the insurance system.

Support Reforms: 84.3% would support reforms if they knew certain legal practices were making their insurance more expensive.
Government Action: A majority (54.8%) believe that the state and federal government should take the lead in addressing the issue, while many also pointed to insurance companies (33.6%) and courts (32.6%).

Practical Advice for Consumers

While systemic changes are needed to address the root causes of rising insurance costs, here are some steps you can take to manage your premiums:

Shop Around: Compare quotes from multiple insurance companies to find the best rates.
Increase Deductibles: Opting for higher deductibles can lower your premiums.
Bundle Policies: Bundling your home and auto insurance can often result in discounts.
Maintain a Good Driving Record: Avoid accidents and traffic violations to keep your premiums low.
Review Coverage Regularly: Ensure you have adequate coverage without overpaying for unnecessary extras.
Identify Underinsured Coverages: Boosting coverage can lessen the chance disputes will turn into lawsuits and thereby help manage longer-term premium rates.

The Bottom Line

Consumers are right to be concerned about the impact of lawsuits on insurance costs. Excessive litigation, driven by factors like third-party litigation funding, is contributing to rising premiums for everyone. By staying informed, advocating for reform, and taking proactive steps to manage your insurance coverage, you can help mitigate the financial impact on your household.