The Public Policy Institute of California (PPIC), a nonprofit research institution, has revealed that over half of California's residents are grappling with financial hardship due to inflation. In a separate report, the state's escalating prices are attributed to an increase in liability risk and costs, fueled by a surge in class action lawsuits and large jury verdicts.
A survey conducted by PPIC in June 2023 indicated that 57% of respondents were experiencing financial difficulties as a result of inflation. The institute pointed out that low-income households in California were particularly affected; among households earning $40,000 or less, 76% reported financial hardship due to rising prices. The report also found that between January 2020 and June 2023, costs in California had risen by 17.9%. Essential items saw even steeper price hikes, including food and beverages (+24%), energy (+38%), and gasoline (+42%).
According to the Insurance Research Council, "social inflation" is having a significant impact on the insurance industry, leading to higher prices for consumers. The council's report identified several factors contributing to social inflation, including rollbacks of tort reforms, extending or repealing statutes of limitations, an increase in attorney advertising and third-party litigation financing (TPLF), as well as a rise in the number of class action lawsuits and large jury verdicts.
The report stated that the emergence of TPLF has disrupted the traditional "basic arrangement" of litigation. This practice involves an external funder, such as a hedge fund or private equity firm, providing capital to a plaintiff in exchange for a percentage of the settlement or jury award. Most jurisdictions do not consider TPLF as discoverable information. It has been associated with class action lawsuits and mass torts and is estimated to be at least a $10 billion industry. According to the report, this practice has contributed to an increase in "the ultimate cost of the claims and lawsuits involved."
The report also highlighted the growing frequency of very large verdicts, or "nuclear verdicts." It stated, "A broad review of jury verdicts across the U.S. found a 300% increase in the frequency of verdicts $20 million or more in 2019 from the annual average during the period 2001 through 2010." These substantial verdicts lead to higher costs for businesses such as insurance providers, which are ultimately passed on to consumers.
According to its website, PPIC is a nonpartisan think tank based in San Francisco. The organization was founded by Roger W. Heyns, former chancellor of University of California, Berkeley; Arjay Miller, former president of Ford Motor Company and former dean of Stanford Business School; and William R. Hewlett, co-founder of Hewlett-Packard Company. PPIC aims to inspire conversations about sustainable policy solutions for California.