or more than a decade, third-party litigation funding (TPLF) — investing in lawsuits in exchange for a percentage of the potential settlement or judgment — has grown into an estimated $20 billion industry and is projected to be a $50 billion industry by the end of 2036.¹ TPLF has been particularly troublesome for the insurance industry, as evidenced by prolonged litigation, rising nuclear verdict amounts, and erosion of policy limits. The average cost of a commercial claim has gone up about 10%-11% per year since 2017, according to Gareth Kennedy, principal of insurance and actuarial advisory service for Ernst & Young (EY).² What started as a noble cause that allowed small companies to pursue claims against larger, better funded defendants, has warped into a gambling system with average annual returns of 25-30% for funders.³

In 2025, TPLF legislation swept the country with 21 states proposing bills and another 8 states enacting bills.⁴ The legislation falls under the themes of addressing (1) consumer protection, (2) disclosure requirements, and (3) funder restrictions. At the federal level, bills have been introduced in 2025 and into 2026 to target the abuse of TPLF. In addition, the Insurance Services Office (ISO) introduced a new, optional mutual disclosure condition endorsement effective January 2026 that will require disclosure of any TPLF agreement and the third-party funder’s identity.⁵

In the litigation finance industry, there appears to be a general tightening of capital in 2025, as reported by the Insurance Journal.⁶ The industry is facing headwinds in the form of lower payouts and longer trial times, leading investors to explore alternative, safer investments. With the looming regulatory changes and legislation, the TPLF landscape will likely shift in the coming years.

Until the recent legislation matures, it is expected that TPLF trends are going to continue to stay high, at least for the next couple of years. Multiple actuaries gave advice on how to handle this current landscape in Jim Lynch’s July/August 2025 Actuarial Review cover story, Financing Justice: The Rise and Risks of TPLF.⁷ The trends have disrupted most companies’ commercial liability loss triangles and the traditional loss development techniques that depend on them. Instead, reserving actuaries can consider a frequency x severity approach to incorporate the implied inflation into ultimates. A feature of TPLF is prolonged litigation, so trends in defense and cost containment expenses are rising as well.

Some companies have left TPLF-heavy lines like commercial auto and hospital professional liability, and/or write lower limits to mitigate the exposure. Additionally, some actuaries have shown data on social inflation trends in their rate analyses. In the CAS and Triple-I’s latest Increasing Inflation on Liability Insurance study,⁸ the estimated impact of increasing inflation across liability lines in the industry from 2015 to 2024 is around $232B – $281B (14.4% – 17.5% of booked loss & DCC). Actuaries can look to this study for guidance on the latest trend figures by specific liability lines of businesses to incorporate into their reserve and pricing analyses.