Car insurance costs surge 16.3% despite inflation slowing to 2.4%

While overall inflation has slowed to 2.4% over the past year, the Bureau of Labor Statistics (BLS) September report shows motor vehicle insurance costs have jumped by 16.3%, outpacing the general inflation rate by more than six times. This sharp increase is linked to the rise of third-party litigation funding, which has added pressures to the auto insurance market.

Third-party litigation funding involves outside investors financing lawsuits in exchange for a portion of any settlement or award. In recent years, its expansion in the auto insurance sector has increased the volume and size of claims, driving up costs for insurers. According to BLS data, motor insurance premiums continue to climb independently of broader economic trends. For example, while food prices rose by just 2.3% over the past year and the energy index fell by 6.8%, motor vehicle insurance costs have surged.

In September alone, motor vehicle insurance costs rose by 1.2%, illustrating the influence of litigation trends on premium rates. This consistent rise, despite slowing overall inflation, suggests that factors specific to the insurance market are at play.

On October 2, over 100 major companies—including Amazon, Procter & Gamble, and Pfizer—urged the U.S. judiciary to adopt a national rule requiring the disclosure of third-party litigation funding in lawsuits. This coalition seeks reform to bring transparency to the multibillion-dollar litigation funding industry, which they argue contributes significantly to rising insurance-related legal costs. Their appeal comes ahead of a hearing by the federal courts’ Advisory Committee on Civil Rules, where they hope for changes to mitigate premium increases.

The Insurance Information Institute (Triple-I) reports that excessive litigation is a key factor behind the ongoing rise in auto insurance costs. Last year, insurers paid out over $1.10 for every $1 in premiums collected, with aggressive "billboard attorneys" adding to the financial strain amid challenging economic conditions and hazardous driving trends.

A report by the U.S. Chamber of Commerce Institute for Legal Reform (ILR) points to "nuclear verdicts" over $10 million as a major contributor to rising insurance costs. These large-scale verdicts, which have significant repercussions for businesses and industries, are seen as distorting the legal system, raising the costs of goods and services, and making insurance more costly and harder to obtain.