Third-party litigation funding (TPL) is contributing to reduced availability and increased pricing in key liability lines, according to the Council of Insurance Agents & Brokers (CIAB).
The CIAB’s first-quarter Commercial Property/Casualty Market Report notes that the practice is affecting claims trends and insurer underwriting behavior across umbrella, automobile, and product liability insurance.
Survey responses from agents and brokers cited difficulties in securing higher excess limits in certain segments, particularly in heavy auto and complex product liability. One respondent said insurers have pulled back from these lines, citing litigation funding as a driver of increased exposure.
When coverage is available, premium costs have risen significantly. According to one respondent, third-party litigation funding is contributing to costs that are “prohibitively expensive,” adding that it ultimately affects consumers negatively.
The CIAB reported that while litigation funding added upward pressure to rates in some segments, overall premium increases across commercial property/casualty lines moderated in the first quarter of 2025. Average premium growth slowed to 4.2%, down from 5.4% in the fourth quarter of 2024.
Mid-sized accounts saw more competition among underwriters, with one survey participant noting that insurers are beginning to re-engage in the segment. Excluding commercial auto and umbrella, all other major lines posted smaller premium increases compared to the previous quarter.
Five lines – cyber, directors and officers, employment practices, terrorism, and workers’ compensation – recorded actual decreases in average premiums.
Despite these shifts, commercial auto and umbrella lines continued to see significant pricing increases. Average premiums for commercial auto rose by 10.4%, while umbrella lines were up 9.5%. The CIAB attributed these increases, in part, to losses linked to litigation finance activity.
According to the report, underwriting attitudes have become more cautious in lines affected by litigation funding. Carriers are adjusting terms and pricing in general liability, umbrella, and commercial auto based on ongoing exposure concerns.
Market data from Westfleet Advisors shows that litigation funding activity has declined over the past two years. Capital commitments to new cases dropped by 16% in 2024, and the overall market contracted by nearly 30% from 2022 levels.
Westfleet said some investors have shifted to a “harvest mode,” focusing on existing investments rather than pursuing new opportunities. Others have adopted narrower selection criteria for new deals.
Westfleet described the commercial litigation finance environment as “tighter than we have observed in at least the last five years.” However, the firm expects capital constraints to ease, particularly as established funders with active pipelines return to the market seeking new funds.
Despite the recent slowdown in funding, insurers continue to cite legal costs – driven in part by TPL – as a factor influencing claims frequency, severity, and overall loss costs.
The US Judicial Conference's Advisory Committee on Civil Rules has recently initiated a study on the necessity of a nationwide rule mandating disclosure of TPLF in lawsuits. This move responds to calls from major companies and business groups advocating for transparency in litigation financing.
In Congress, Rep. Darrell Issa (R-Calif.) introduced the Litigation Funding Transparency Act of 2024, which would require disclosure of any third-party entities entitled to receive payment contingent on the outcome of a civil action.
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