Infographic: Legal system abuse

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 Re 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.