California, known for its high cost of living, also has the highest poverty rate in the nation. A significant factor contributing to these high costs is a large volume of litigation, which escalates insurance costs for policyholders.
According to a commentary piece published by CalMatters, California ranks third in terms of the highest cost of living in the country, trailing only Hawaii and Massachusetts. The average Californian household spends approximately $53,171 annually on necessities such as housing, food, health care, and transportation. Drawing on data from the U.S. Census Bureau, CalMatters stated that California also holds the dubious distinction of having the highest poverty rate in the country. Research conducted by The Public Policy Institute of California revealed that nearly one-third of California residents are either living in poverty or near poverty conditions. Furthermore, Californians collectively shoulder at least $2.5 trillion in debt stemming from home mortgages, auto loans, and other personal debts.
The law firm Tyson & Medes characterized California as a "hotbed of social inflation," a term used to describe escalating costs resulting from high litigation rates and substantial payouts. The firm's report indicated that this trend has continued to worsen over recent years. It pointed out that trial attorneys often rely on extensive advertising campaigns and prevailing anti-corporate sentiment to attract claimants and secure large verdicts.
The National Association of Insurance Commissioners (NAIC) reported that third-party litigation funding (TPLF), involving financiers such as hedge funds, is exacerbating social inflation. A Swiss study found that TPLF is "contributing to growing loss ratios for excess liability, commercial auto, medical malpractice and general liability," leading inevitably to higher insurance costs for consumers. These increased insurance costs are a direct consequence of insurance providers being compelled to raise their prices to offset higher liability expenses.
According to its website, NAIC was established in 1871 and serves as a standard-setting body led by the chief insurance regulators from across the country. The organization provides data and analyses to support regulation of the insurance industry, with a primary goal of protecting consumers.