Insurer litigation expenses declined slightly between 2023 and 2024 and potentially benefitted from state legal reforms to address increasing litigation costs, the U.S. Department of the Treasury’s Federal Insurance Office (FIO) said in a new report.
Citing S&P Global Data, the office reported that U.S. P/C insurers’ defense costs and containment expenses incurred as a percentage of direct premiums earned declined to 3.9% in 2023 and 2024 after having remained almost flat at about 4.5% between 2015 and 2020.
According to the report, the national expense decline corresponded to recent reductions in Florida—particularly in the multiperil homeowners insurance and private auto lines of business—following the state’s recent legal reforms. Those reforms focused on eliminating one-way attorney’s fees, restricting assignment of benefits and reducing the time periods for claims and benefits.
Per the FIO report, Florida P/C insurers’ defense costs and containment expenses incurred as a percentage of direct premiums earned declined to 5.1% in 2024 after rising from 4.5% in 2015 to 6.6% in 2022, before the reforms were enacted.
Still, Sam Whitfield, senior vice president of federal government relations and political engagement at the American Property Casualty Insurance Association (APCIA), said that third-party litigation funding is “a growing concern, with significant implications for claims costs and market stability.”
“The rise in third-party litigation funding is particularly troubling, as it inflates claims costs and contributes to a tort tax, a hidden burden of more than $5,000 per household on average annually,” Whitfield said. “That is why APCIA strongly supports federal legislation like the Litigation Transparency Act of 2025 and the Protecting Our Courts from Foreign Manipulation Act of 2025, which aim to bring much-needed transparency and accountability to this shadowy practice.”
Whitfield pointed to the success of the litigation reforms enacted in Florida. Legal filings have dropped by more than 30% in the state, and insurers have begun lowering costs or issuing refunds, he said. These reforms “demonstrate that smart, targeted legal reforms can stabilize market, reduce costs, and deliver real savings to consumers,” Whitfield added.
The FIO reports that nationally, at least 21 states have adopted laws or regulations governing third-party litigation funding, noting that these pieces of legislation are not universal and carry significant differences.
Seven states have laws that only cover consumer TPLF contracts, for example, while one state has a law that only covers commercial TPLF contracts, and the remaining 14 states have laws that cover both consumer and commercial TPLF contracts.
Just five states require disclosure of the contents of the TPLF contracts to the opposing parties, while three states require disclosure of the existence of the TPLF contracts, and two states require disclosure of the key terms to the opposing parties.
The remainder of the states do not require disclosure of TPLF contracts.
P/C Industry Overview
Also in the report, the FIO said that the P/C sector logged its third consecutive year of 10% growth in direct written premiums in 2024. The office reported that the industry returned to an underwriting profit after two consecutive years of losses.
Last year’s combined ratio also marked its lowest level in the past 10 years.
A strong turnaround in personal lines results drove the improvement, according to the report, as for the first time since 2019, the segment recorded its first annual underwriting profit. This came “despite significant catastrophe losses from convective storms (i.e., thunderstorms that may produce lightning, hail, strong winds, or tornadoes) and hurricanes,” the office said.
The industry also experienced record net investment income and more than doubled net earnings, which led to a return on average equity of 15.9%, the highest in the past decade. P/C policyholder surplus grew by 7%, the FIO said, due in large part to the strong gains in profitability.
Increased complexity and greater illiquidity in the investment portfolios of both the P/C and life and health sectors continued in 2024 even in the presence of higher interest rates.
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