Legal Review: Litigation Is Driving Up U.S. Commercial Auto Insurance Costs

Between 2010 and 2019, commercial auto insurance payouts have increased by a whopping $20 billion. That data is based on a report shared by the Insurance Information Institute (Triple I) in collaboration with the Casualty Actuarial Society (CAS).

Even with the cost of insurance being on the rise, players in the sector continue to suffer losses. According to the Insurance Research Council (IRC) report, losses across insurance lines have continued to gain momentum at a rate that is not in tandem with economic inflation.

Factors Pushing Up the Cost of Insurance

While the focus of the Triple I and CAS report was on commercial auto insurance, it also reported similar trends in other lines of insurance such as premises liability, medical malpractice liability, and workers’ compensation. According to the report, negative public sentiment on big corporations, tort reform rollbacks, and litigation funding are the main drivers of this rise in liability costs.

Jurors also tend to be more sympathetic with the plaintiffs, which almost always influences their verdict. There is also a misconception that corporations and their insurer’s financial resources are unlimited, leading to verdicts far from realistic, with some being as high as $10 million.

Another factor playing a significant role in increasing payout and affecting the cost of insurance is litigation funding and lending. Funding a plaintiff’s case has become a big business that involves international hedge funds and other financiers. These parties fund a plaintiff’s injury claim ensuring they get the best legal assistance for a cut in the final payout.

In other words, lawyers will have to use every means of fighting for a high payout, which has caused litigation funding to evolve into a multi-billion dollar industry. Some experts estimate the litigation funding industry was worth $39 billion globally as of 2019.

International Legal Finance Association

Some states have attempted to create laws requiring full disclosure of all parties involved in litigation. However, litigation funders are fighting hard to maintain the status quo. In 2020, 13 of the world’s largest commercial litigation funders created the International Legal Finance Association (ILFA), whose aim is to champion their rights and push back on full disclosure rules.

Commercial auto insurance tops the list of the worst-hit line of insurance. According to the American Transport Research Institute, jury verdict awards grew at a rate of 33 percent every year between 2010 and 2018. During these years, inflation and health care costs grew by 1.7 percent to 2.9 percent, respectively. In a perfect world, the insurance rate should grow at the same rate as economic inflation and the cost of health care.

“Insurance providers are in the trade for the money,” says Attorney John Cooper of Cooper Hurley Injury Lawyers. “Insurance companies have no option but to increase their premiums to keep up with rising payouts.”

If the prevailing circumstances continue, insurance companies may stop certain types of covers. Every increment in cost passes on to the consumer causing a ripple effect on the national economy and creating conditions similar to the 80s liability crisis that saw some insurance companies facing the risk of insolvency.