How Litigation and Settlements Affect the Insurance Industry

Litigations and settlements are things that might not come to mind when you think of what your insurance needs to cover, but they have a big impact on the insurance industry. If you’ve ever wondered why certain policies come with higher premiums or specific coverage limits, the answer often lies in the rising costs of lawsuits and settlements. 

When claims are filed with an insurance company, they work with teams of lawyers who work towards reaching a settlement with the injured party before the case results in a lawsuit. Whether you’re a business owner looking to protect your company, or an individual looking to understand your policy, understanding how litigation and settlements affects your policy can help you make informed decisions about your coverage. 

The insurance industry operates an extensive negotiation network, it includes 30,000 claim professionals and 30,000 defense attorneys who handle one million files annually. Negotiation carries the insurance industry through many claims, helping to settle 97% of all cases before they get to court. 

Claims workers and defense attorneys are tasked with the responsibility of reaching “good” settlements, they must work to find the balance between a fair offer to the injured party and not overpaying. Reaching this balance means that the case does not reach court and risk being delivered a much higher bill. Insurers often choose to settle rather than fight claims in court. This can avoid the higher costs associated with court expenses.

Settlement amounts are transitioning into a calculated science, new AI technology is gathering information on cases, lawyers, and the legal landscape of your area. Prosecuting lawyers are taking advantage of this and asking for bigger settlements than before, maximizing what they can gain without negotiation. With these higher payouts, premiums are going up to help cover the additional expense. 

These high settlement payouts impact insurance companies’ bottom lines, eventually affecting premiums as the carrier attempts to recuperate that cost. When we wonder why insurance prices are rising, we must consider two insurance coverage points. On one side, the insurance company is there to protect you protect you after a tangible loss, but additionally, they also step in to protect your from the financial loss associated with a lawsuit. While the threat of lawsuits continue to rise, due to an increase in personal injury attorneys, litigation financing, and overall hgiher costs, insurance companies have to make up their bottom line somewhere. Unfortunately, because of all of this we all experience higher insurance costs. 

The higher chance of lawsuits can also impact you directly. Your standard policy might not be enough to cover a lawsuit, this is where an umbrella policy can help you cover the rest of those costs. While we may hate to see the added cost to our insurance, the additional coverage will help you in the case of a high cost settlement exceeding your limits. 

It is important to stay ahead of trends in how litigation is handled for individuals and businesses, as the changing legal landscape greatly impacts your insurance coverages and expenses. As long as there is a growing threat to being the victim of a lawsuit, you will need to ensure proper coverages are in line to help you financially recover. 

To be sure you are protected, it is best to consult with your agent about your coverage limits. While we examine the coverages and the expense, we have to keep the trend of lawsuits and high settlement costs in mind. Without the proper coverage, you may fall victim to a large legal bill.