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Commercial Litigation Funding and Social Inflation: A Non-Sequitur
Voices in the insurance industry have recently called for the regulation of commercial litigation funding on the ground that it is “a key driver of social inflation.” Such calls to action lack empirical support and fail to withstand even gentle scrutiny.
Executive Summary
Countering views often expressed by property/casualty insurance organizations—notably, a recent report published by Swiss Re—Dai Wai Chin Feman, director of Commercial Litigation Strategies at Parabellum Capital, explains why commercial litigation funding is not the root of social inflation. Here, he describes the differences between consumer and commercial litigation funding, noting that commercial funders focus on areas where insurance coverage is rare. He also offers data to show that the industry is too small to materially contribute to social inflation.
In his view, regulation reforms being pushed by insurers and reinsurers would increase insurance costs and prolong case durations.Executive SummaryCountering views often expressed by property/casualty insurance organizations—notably, a recent report published by Swiss Re—Dai Wai Chin Feman, director of Commercial Litigation Strategies at Parabellum Capital, explains why commercial litigation funding is not the root of social inflation. Here, he describes the differences between consumer and commercial litigation funding, noting that commercial funders focus on areas where insurance coverage is rare. He also offers data to show that the industry is too small to materially contribute to social inflation.In his view, regulation reforms being pushed by insurers and reinsurers would increase insurance costs and prolong case durations.
In reality, commercial litigation funding does not—and cannot—meaningfully contribute to social inflation. It should be welcomed by the insurance community as a means to decrease costs and increase exposure to meritorious affirmative litigation risk.