FIO 2025 Report Highlights Litigation Funding Impact on U.S. Property-Casualty Insurance

Rising Legal Costs and Market Pressure: The FIO’s 2025 Insurance Industry Report

The U.S. Department of the Treasury’s Federal Insurance Office (FIO) has released its 2025 Annual Report on the Insurance Industry, and it’s sparking serious discussion across the property-casualty (P&C) sector. The headline takeaway? Mounting financial pressure driven in large part by a growing—and increasingly controversial—trend: third-party litigation funding.

The Cost of Litigation Funding

Third-party litigation funding, where outside investors finance lawsuits in exchange for a cut of the settlement, is rapidly changing the claims landscape. What was once a niche practice has become a multibillion-dollar force reshaping how—and how often—claims are filed. For insurers, this trend translates to ballooning legal expenses and higher payouts, rippling through to policyholders in the form of rising premiums.

“When investors have a stake in litigation outcomes, it can drive up both the frequency and severity of claims,”
— American Property Casualty Insurance Association (APCIA)

The concern isn’t just financial. Industry voices warn that opaque funding arrangements threaten the integrity of the legal process itself, allowing foreign or undisclosed entities to quietly influence American courts.

A Push for Transparency and Reform

In response, industry associations and lawmakers are pushing for more oversight. Two bills—The Litigation Transparency Act of 2025 and The Protecting Our Courts from Foreign Manipulation Act of 2025—aim to bring sunlight to the funding ecosystem, requiring disclosure of investors and potential conflicts of interest.

Here’s what’s driving the reform momentum:

• Escalating Claims Costs: Lawsuit funding is adding billions to insurers’ annual claims burden.

• Consumer Impact: Higher loss costs mean higher premiums across personal and commercial lines.

• Accountability Gap: Lack of disclosure allows unknown third parties to shape litigation outcomes.

• Policy Solutions: Federal transparency rules and state-level tort reforms are gaining traction.

Lessons from Florida’s Legal Overhaul

Florida’s experience offers a rare bright spot in the report. Following a series of targeted reforms aimed at curbing excessive litigation, the state saw legal filings drop more than 30%. This decline enabled several insurers to either lower premiums or issue partial refunds—an encouraging signal for other states exploring similar measures.

“Florida’s reforms show that legal clarity and balance can bring immediate relief to both insurers and consumers,”
— Federal Insurance Office (FIO) 2025 Annual Report

Building Resilience Beyond the Courtroom

Beyond litigation, the FIO report commends insurers for expanding their role in community resilience and climate adaptation. Investments in mitigation, infrastructure partnerships, and data-driven risk modeling are helping stabilize markets long-term. The message is clear: a competitive insurance marketplace works best when it can accurately price risk and reward proactive loss reduction.

A Turning Point for the Industry

The 2025 FIO report paints a complex picture: one of legal turbulence and financial headwinds, but also innovation and reform. As insurers navigate litigation challenges and rising costs, the industry’s dual mission—protecting consumers while ensuring market stability—remains firmly in focus.

The takeaway for insurers? Legal transparency and policy innovation aren’t just good governance—they’re essential to rebuilding trust and affordability in the years ahead.