Insurers are feeling the pinch from a social inflation and legal costs phenomenon. Ultimately, they say, it’s the consumer who pays.
Law firms are capitalizing on technology and new ways of funding to drive up awards and drum up business. When cases do reach court, attorneys are using behavioral science to turn juries against defendants. At times, they are generating multi-million-dollar awards. In other instances, technology is being used to build packages of cases, in at least one example driving a judge to despair.
Insurers have struggled to price for the impact of legal tactic changes, across commercial and personal insurance. Collectively, US casualty insurers put more than $1 billion aside last quarter to make up for ballooning past claims costs. But, they say, it’s not just their business that’s being hit by growing legal costs.
Insurers warn of rising awards, “tort tax”
The average American household feels the financial pain of “legal system abuse” to the tune of $3,621 a year. That’s according to a recent warning from insurance trade association the America Property Casualty Insurance Association (APCIA) and reinsurer Munich Re.
That’s not just across insurance. The ‘tort tax’, originally outlined by the US Chamber of Commerce Institute for Legal Reform, is said to be hitting consumers across everything from gas prices to groceries.
In cases, civil court juries have been issuing verdicts for damages in amounts that “rival the annual budgets of small countries, threaten to take down businesses, and provoke spikes in insurance premiums,” Marathon Strategies cautioned in its Corporate Verdicts go Thermonuclear report.