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AM Best Report Highlights Legal System Abuse Impact on Insurance Industry

Insurance Information Institute

According to the industry publication Insurance Journal, AM Best recently published a  report titled “Despite Heightened Risks, Casualty Reinsurance Renewals See Modest Price Changes,” which, among other things, offers crucial insights into the impact of legal system abuse on the insurance industry. 
AM Best’s analysis clearly shows how legal system abuse is affecting the insurance sector, particularly for reinsurers navigating a complex array of emerging risks and economic pressures.
Key Highlights from AM Best’s Report:

  • Stable Economic Environment: 2023 provided a relatively stable economic backdrop for reinsurers, coupled with a series of interest rate hikes and lower catastrophe losses. This environment contributed to a reassuring capacity for the Jan. 1, 2024, renewals, especially within casualty programs.
  • Litigation Funding’s Impact: A significant driver of social inflation, third-party litigation funding (TPLF) has been identified as a key factor exacerbating casualty results for both primary insurers and reinsurers. The sophisticated tactics employed by plaintiff’s attorneys, including advanced marketing and emotional messaging, have led to inflated judgments, further stressing the system.
  • Economic and Social Inflation: The report sheds light on the dual pressures of economic and social inflation, particularly impacting excess reinsurance pricing. This trend results from worsening claims severity, outpacing price increases, and adding further strain to the insurance industry.
  • Commercial Auto Challenges: The sector continues to face reinsurance pricing challenges, attributed to a decade of primary rate increases failing to align with loss trends. This misalignment underscores the broader implications of legal system abuse on insurance pricing and availability.

Impact on the Insurance Industry and the Road Ahead:

As noted by Insurance Journal, the findings from AM Best highlight a critical juncture for the insurance industry, where legal system abuses influence the immediate financial outcomes and shape the strategic approaches of reinsurers and insurers alike. The growth of TPLF and the resulting social inflation underscore the urgent need for comprehensive strategies that address these systemic risks.
As we navigate these changing tides, we must remain vigilant, adaptive, and collaborative in safeguarding the industry’s resilience.

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