Consumers, businesses, and insurers are increasingly fraught by the impact of legal system abuse and the resulting skyrocketing verdicts. Legal system abuse, often referred to as social inflation, applies to a variety of tactics the trial bar uses to initiate more lawsuits, drive up litigation expense costs and settlements for defendants, and secure higher verdicts.

Third-party litigation funding (TPLF) is surging, with more than $11bn of capital invested in the United States.
This driver of legal system abuse is an arrangement where a funder that is not a party to a lawsuit provides funding to a plaintiff or law firm in exchange for an interest in the potential award in a lawsuit. Plaintiffs do not have to repay the funding if their lawsuit is not successful.

Munich Re is taking a proactive approach to understand and address the issue of legal system abuse.
The following are strategies clients can implement to help mitigate this risk:

• Require discovery of TPLF arrangements
• Enhance defense case management to offer a more effective counter to the plaintiffs’ bar
• Ensure risk management practices are optimized
• Review insurance contracts to certify appropriate coverage
• Proactively manage claims, especially in long-tail business
• Prepare for renewals to demonstrate exposures, risk management, and propensity to losses
• Prepare defendants adequately
• Evaluate higher deductibles, higher retentions, or reduced insurance policy limits
• Use data, analytics, and technology to improve exposure monitoring and analysis to identify trends early
• Analyze developments from a cross-functional perspective, pulling expertise from claims, legal, underwriting, and data analytics departments to understand and respond quickly

Munich Reinsurance America Inc. is uniquely positioned to take a broad approach using a cross-functional team with expertise in claims, legal, underwriting, actuarial, and data analytics to work with clients and brokers to better understand their business and address the changing risk landscape.