Litigation Funding Raises Premiums, Alters Liability Insurance Market Dynamics

Third-party litigation funding (TPL) is impacting liability insurance markets in the U.S., driving reduced availability and increased premium pricing in key lines such as umbrella, automobile, and product liability. The Council of Insurance Agents & Brokers (CIAB) notes that insurers are pulling back from certain segments, partly due to increased exposure associated with litigation finance activity. Agents and brokers report difficulty securing higher excess limits, particularly in heavy commercial auto and complex product liability insurance. Premiums in these lines have risen significantly and are described as prohibitively expensive by market participants.

Despite these challenges, the overall commercial property/casualty market saw a moderation in premium growth in Q1 2025, with average increases slowing to 4.2% from 5.4% in the previous quarter. There is renewed competition and underwriting engagement in mid-sized accounts excluding commercial auto and umbrella lines. Notably, cyber, directors and officers, employment practices, terrorism, and workers' compensation lines have experienced actual premium decreases.

Commercial auto and umbrella coverage continue to experience significant rate hikes of 10.4% and 9.5% respectively. Insurers are adopting more cautious underwriting approaches in these segments, adjusting terms and pricing to reflect ongoing claims frequency and severity concerns linked to litigation funding. These market shifts underscore the influence of litigation finance on insurer risk appetite and loss costs.

Market insights from Westfleet Advisors indicate a contraction in litigation funding activity over recent years, with capital commitments declining 16% in 2024 and a nearly 30% reduction since 2022. Investors are focusing more on existing portfolios and applying stricter criteria on new investments. However, Westfleet anticipates the potential for capital influx as established funders return to active investing.

Regulatory and legislative attention on TPLF is increasing, prompted by calls for transparency. The U.S. Judicial Conference's Advisory Committee on Civil Rules is studying a nationwide mandate on disclosure of third-party litigation funding in civil actions. Further, the Litigation Funding Transparency Act of 2024 has been introduced in Congress to require disclosure of third-party entities financing lawsuits and entitled to contingent payments. These measures aim to address concerns over the impact of TPL on litigation outcomes and insurance claims trends.