Insurance rates for homes and automobiles in the United States have seen significant increases in recent years, influenced by factors such as inflation, natural disasters, and rising repair costs. However, a major contributor to these escalating premiums, often overlooked, is the increasing number of lawsuits and payouts that insurers face.
The American Property Casualty Insurance Association (APCIA) highlights what it terms a "tort tax," estimating that the average American household incurs an additional $4,200 in costs linked to litigation abuses. David Sampson, the APCIA's president and CEO, emphasizes that addressing legal system abuse remains a top priority for the industry, as it heavily impacts insurance availability and affordability.
Recent data from the APCIA reveals a substantial rise in personal injury awards. The average personal injury verdict has surged from approximately $39,300 in 2010 to over $125,300 in 2020, marking a 319% increase. Additionally, "nuclear verdicts," or jury awards exceeding $10 million, have also grown significantly in recent years. Sampson notes that tactics such as jury anchoring—where lawyers use inflated figures to influence jury perceptions—exacerbate these trends.
Moreover, issues like phantom damages, where juries only see inflated medical bills rather than the lower amounts paid by insurers, further complicate the situation. Legislative reforms in some states aim to address problems related to premises liability, but challenges remain.
The APCIA also raises concerns about third-party litigation funding, where outside investors finance lawsuits, potentially skewing control away from victims. As litigation costs rise, there are apprehensions about the involvement of foreign entities in the U.S. legal system, particularly concerning technology-related lawsuits. Overall, these factors collectively contribute to the increasing strain on insurance rates across the country.