Insurers warned TPLF could add $50B to industry costs
- SCCLR Newsletter
- Oct 8
- 3 min read
By: Gia Snape
Third-party litigation funding (TPLF) has quickly turned into a systemic cost driver for the insurance industry. In a panel discussion at the American Property Casualty Insurance Association (APCIA) Annual Meeting in Orlando this week, corporate executives leading civil justice reforms warned that, if left unchecked, litigation funding could siphon tens of billions from insurers, with policyholders ultimately footing the bill.
Litigation funding enables outside investors, including hedge funds, private equity firms, and specialized financiers, to fund lawsuits in exchange for a share of any settlement or award. While the practice is legal and increasingly common, data about its scale and outcomes remains sparse.
Recent analysis by Ernst & Young (EY) estimates that TPLF could impose up to $50 billion in additional costs on the American insurance industry over the next five years, which translates roughly to a 4%-5.2% drag on annual loss ratios.
“It’s a very significant impact. Given the lack of transparency, you have to look at it top-down, as an asset class,” said Gareth Kennedy, a leader in EY’s insurance and actuarial advisory services practices in its financial services office.
EY’s team approached the problem by treating TPLF as an asset class, analyzing capital commitments and expected deployment cycles. The top-down model showed that once capital is committed, it will be deployed for years, creating steady pressure on claim costs regardless of reform efforts in the near term.
“Roughly 20% of assets under management get committed to new deals each year, and those deals deploy capital over their life cycles, which average about 3.5 years,” Kennedy said. “The money is already in the system... So, we see these pressures continuing at least into the near future without meaningful reform.”
Why disclosure won’t fix legal system abuse
Momentum is building for greater oversight on third-party litigation funding. Federal lawmakers introduced the Litigation Transparency Act of 2025 (H.R. 1109) earlier this year, which would require disclosure of third-party funding arrangements in federal civil cases. Several states are considering similar measures.
Transparency advocates have argued that if funding sources were visible, courts and juries could better understand the interests at stake and assess whether plaintiffs’ strategies are being driven by justice or by investors’ profit motives.
However, disclosure alone “isn’t a silver bullet,” warned Nathan Morris, senior counsel, litigation policy & risk mitigation for Johnson & Johnson.
“Constituents don’t care who’s funding a case; they care that they were hurt. Knowing the money is there is useful, but changing the incentives so funders put money in different places is more important,” Morris said.
And unless deeper incentives are addressed, such as attorney-doctor referral networks that inflate medical billing, capital will simply flow into new areas of litigation, said Adam Blinick, senior director of US and Canada policy & communications for Uber: If you try to choke off the money rather than fix the underlying problem that generates those returns, you’re losing the forest for the trees."
How can the insurance industry fight back against litigation funding?
Panellists also stressed that insurers should not be the sole or even primary face of reform efforts.
Coalitions with small business associations, consumer advocates, and other affected groups will be crucial to gaining legislative traction. “It has to be a multifaceted approach,” said Blinick.
At the same time, insurers play a crucial role in gathering and sharing data, highlighting case studies, and supporting reforms that strike a balance between consumer protection and fair access to justice. Many large carriers have also invested in internal legal expertise and training to strengthen their ability to defend against increasingly well-financed claims.
Finally, messaging will be critical, and insurers must find consumer-friendly ways to demonstrate how legal funding can inflate costs.
Panellists encouraged insurers to communicate to consumers at renewal that rates are stabilizing or dropping, and to connect this to the reforms.
“If you have small and medium-sized businesses struggling with premiums that you have to pass to them… those can be powerful stories,” Morris said.
