Litigation financing has moved from a niche funding mechanism to a powerful force shaping claims severity, settlement dynamics, and, ultimately, insurance costs.
As third-party investors increasingly back lawsuits, the result has been a steady rise in what industry observers have called “litigation inflation.” According to Swiss Re's analysis, liability claim severity has increased by 57% over the past decade, driven by large verdicts and awards exceeding $100 million.
However, Katie Evans (pictured), executive vice president and chief legal officer at CSAA Insurance Group, believes 2026 could mark a turning point in how the industry responds.
“In 2026, carriers will push back against the distortive effects of litigation financing by coupling data-driven defense analytics with policy-level transparency reforms,” Evans told Insurance Business.
“Expect coordinated industry efforts, including model law updates, disclosure mandates, and early-resolution protocols, to curb speculative suits and restore proportionality in claims costs, all while preserving fair access to justice.”
For Evans, the heart of the litigation funding abuse is opacity. In most states, third-party investors remain invisible to insurers, courts, and even juries. Their financial stake is rarely disclosed, despite the fact that their return expectations can influence the overall cost of a claim.
“Their interest is purely financial,” Evans said. “Their interest is purely financial, and their demand for higher returns on their investment in the litigation artificially drives up the amount of the claim without improving outcomes for individual claimants and to the detriment of insurance consumers."
As litigation finance has grown more lucrative, it has attracted increasingly sophisticated capital. Evans noted that some arrangements prolong disputes, encourage aggressive tactics, and add layers of complexity that do little to benefit claimants.
Insurers’ response is increasingly focused on mandatory disclosure and early-resolution mechanisms that promote transparency and fairness, said Evans. Several US states, including Georgia, Kansas, Indiana, Louisiana, Montana, West Virginia, and Wisconsin, have passed laws requiring greater disclosure of funders' identities and financial interests, with others considering similar measures.
While disclosure is foundational, it is only one tool in a broader strategy. Liability carriers are also refining how they evaluate damages, particularly in response to inflated medical bill submissions that bear little resemblance to what providers are actually paid.
At the same time, insurers are investing heavily in process improvements and data evaluation to identify patterns of abuse, including closer scrutiny of repeat plaintiff firms, medical providers with unusually high billing practices, and cases where litigation funding appears to be driving strategy rather than the claimant’s best interests.
Early-resolution protocols are another area of focus. Some factors, such as mediation and pre-litigation engagement, can shorten claim lifecycles and reduce friction before costs escalate. At CSAA, Evans said the legal function works closely with claims, analytics, and product teams to address problems upstream.
“Legal innovation for us isn’t about being more aggressive; it’s about being intentional,” she said. “Every approach is grounded in ethics, governance, and the customer experience, with the goal of resolving issues efficiently and fairly.”
Evans emphasized that no single carrier can meaningfully address litigation inflation on its own. Meaningful reform requires collaboration across insurers, trade groups, regulators, and the broader legal ecosystem.
Insurance brokers can also play a critical role. As intermediaries between carriers and policyholders, brokers are often best positioned to explain how litigation trends affect premiums, capacity, and coverage terms.
“Brokers play an important role as translators and advocates,” Evans said. “That puts them in a strong position to advocate for reforms that promote transparency, proportionality, and early resolution, whether through legislative engagement, support for disclosure requirements, or client education."
By elevating these issues with policymakers and customers alike, she said, brokers can help reinforce a system that treats legitimate claims fairly while discouraging practices that drive up costs for everyone.
On the regulatory front, Evans does not expect a single, universal model law governing third-party litigation funding. Instead, she anticipates continued momentum around disclosure-focused reforms.
Several states already require some level of litigation financing disclosure, and federal proposals such as the Litigation Transparency Act of 2025 have been advanced in Congress to expand disclosure mandates to federal court cases.
Courts and policymakers are paying closer attention, and are "increasingly focused on requiring parties to disclose the existence of litigation funding, the identity of the funder, and the nature of the financial interest," Evans said.
"What we expect to see moving forward are model laws that will require disclosure of any conflicts of interest, third-party investments in litigation and an explicit affirmation that the client retains ultimate control of their cases," she added.
