Research and consulting firm Sedgwick released a report on May 31, which found that the involvement of third-party funders in lawsuits, or third-party litigation funding (TPLF), contributes to social inflation. Social inflation describes the cost of insurance claims rising faster than overall economic inflation.
According to the report, third-party financiers invested more than $3.2 billion in court cases in 2022, representing a 16% increase from 2021. TPLF is also one factor driving larger verdicts, which are another contributor to social inflation. A study conducted by Swiss Re found that plaintiffs receive 12% less compensation when a third-party financier is involved in the case. Sedgwick did not list California among the states that have introduced or passed legislation regulating or requiring transparency around TPLF.
The National Association of Insurance Commissioners stated that TPLF is having an "outsized effect" on social inflation. The practice results in higher premium costs for all insurance policyholders.
Nationwide, the cost of car insurance rose 1.8% in April and 22.6% during the year ending in April, according to the latest data from the Bureau of Labor Statistics.
According to a report from Bankrate, California drivers pay an average of $2,633 per year for full coverage car insurance, more than the national average cost of $2,311.
Sedgwick utilizes proprietary technology and industry data to provide insights and business solutions, according to the company’s website.