Severity, not frequency, is driving the rise in claims costs today. While the number of claims has generally declined, the average cost per claim has soared.
From 1994 to 2008, claim frequency declined and lawsuits tracked that trend, falling from roughly 5,800 to around 4,000 motor vehicle tort civil case filings in federal courts (Figure 1). That makes intuitive sense. Fewer accidents, fewer claims, fewer lawsuits. From 2008 to 2014, both claim frequency and lawsuit filings were relatively stable. Again, the relationship held.
But then something changed. From 2014 to 2023, claim frequency continued to fall—accidents were still declining—yet lawsuit filings rose sharply, climbing back above 6,000 by the end of this period.
Third-party litigation financing (TPLF) is when a funder unrelated to the case, such as a hedge fund, provides money to cover a plaintiff’s legal costs in exchange for a share of any damages awarded through judgment or settlement.
The treatment of insurance lawsuits as an asset class that can be packaged and sold to big money investors remains largely unfamiliar to the general public. Most people simply don’t know litigation financing exists or how it works.
In recent years, however, the Insurance Research Council (IRC) has seen increases in the percentage of respondents who say they know what it is. When TPLF is explained to them, there is strong consensus that litigants should be informed when outside investors are financially involved in their case. Such transparency is something nearly everyone (seven out of 10) agrees on, according to the IRC report.
Legal actions against insurance companies have traditionally been viewed as individuals taking on large corporations with deep pockets. Increasingly, however, third-party funding in litigation pits significant financial resources against insurers who are striving to maintain affordable premiums.
This shift in perception could influence juries who might have previously been inclined to award ‘nuclear’ verdicts against insurance companies.
The High Cost of Attorney Involvement
Importantly, representation rates are rising at all levels of claim size, not just large, complex claims where you might expect attorneys to get involved. Even smaller claims are seeing higher attorney involvement rates than in prior years.
And there is significant geographic variation. Attorney involvement varies widely by state and even by locality within a state. That variation is itself a signal: it tells us that legal and regulatory environments, local advertising density, and plaintiff attorney market activity are all shaping these numbers, not just the underlying injuries.
When comparing groups of similarly injured claimants, controlling for injury type and severity, it is possible to still see meaningfully different patterns between those with and without attorney representation.
Claimants with attorneys show different patterns of treatment—the types of providers they see, the sequence of treatment, and the duration all differ from unrepresented claimants with comparable injuries.
Similarly injured claimants with attorneys also have higher medical utilization. More visits, more procedures, more diagnostic testing. In some IRC studies, claimants with attorneys were seven times more likely to have an MRI.
