A May 31 report from the consulting firm Sedgwick found that third-party litigation funding (TPLF), or the involvement of third-party financiers such as hedge funds in lawsuits, is driving social inflation, resulting in higher insurance costs for policyholders.
According to the report, TPLF began growing in popularity in the U.S. in 2010 and has continued to become more prominent due to a lack of regulation. Third-party financiers invested more than $3.2 billion in court cases in 2022, representing a 16% increase from 2021. Sedgwick found that TPLF is contributing to social inflation, or the cost of insurance claims rising faster than overall economic inflation. The firm did not list Nevada among states that have introduced or enacted legislation to regulate TPLF.
Nevada drivers pay an average of $3,004 annually for full coverage car insurance, compared to the national average of $2,311, according to a report from Bankrate.
Former State Senator Scott Hammond sponsored a bill last year that would have required transparency around TPLF, 2News reported. Proponents of the bill said third-party investors are influencing legal cases in order to optimize the amount of money they make from the cases. "These investors will front money to a law firm or party in exchange for a predetermined percentage of any award or settlement," Hammond said. "This sophisticated industry is multi-faceted, but it includes funders investing in individual cases, or with increasing frequency, an entire portfolio of particular cases at a law firm." Hammond added that "TPLF can increase the number of lawsuits of questionable standing or frivolous in nature to be filed." The Nevada Justice Association opposed the bill.
The bill did not advance from the Senate Judiciary Committee, according to LegiScan.
Sedgwick utilizes proprietary technology and industry data to provide insights and business solutions, according to the company’s website.