We knew we were important to the insurance industry—but we didn’t understand why.
Legal finance has become a lightning rod in insurance industry conversations about social inflation and claims costs, yet the substance of what we do remains widely misunderstood. That lack of clarity is fueling insurance company calls for boycotts and regulatory proposals that do not track with reality.
Clarity—not confrontation—must define the conversation between two industries shaping the civil justice system.
As leaders of two major commercial legal finance providers, we joined a recent roundtable to help bridge that gap. Facilitated by II’s Director of Research, Amit Kumar, the discussion offered a rare opportunity for direct dialogue between litigation finance companies, insurance companies, and other property/casualty stakeholders. Our goal was simple: replace speculation with facts and start a conversation between principals instead of proxies.
The Current Debate
Some insurers argue that legal finance drives runaway verdicts and rising claims costs. Yet, as Amit wrote in June, there’s little evidence to support the link between legal finance and social inflation. Boycotts and legislative efforts nevertheless persist, driven by a coalition of insurance companies, the defense bar, big tech, and pharmaceutical interests.
What Legal Finance Really Is
Legal finance is not monolithic. It is best described as spanning three distinct segments, each of which has different users, different uses of capital, and different policy considerations:
- Commercial funding – Non-recourse capital for complex business-to-business disputes that are capital-intensive in nature, such as patent, antitrust, and trade secret litigation. These matters rarely involve insurance on either side of the dispute, as the underlying cases rarely involve conduct that is insurable. Notably, because commercial litigation finance is high quantum and non-recourse, funders are incented to fund only the most meritorious cases. Interestingly, claims of this type do in fact periodically intersect with contingent risk products such as judgment preservation and collateral protection insurance, in which case there is a symbiotic, rather than a confrontational, relationship between insurance and litigation funding. These products wrap recoveries in large commercial disputes and provide critical liquidity solutions to corporate litigants.
- Consumer funding – Small, non-recourse advances for living expenses in personal injury cases. Returns are interest-based, and because these claims typically involve insurable conduct, this segment is most relevant to insurers. Commercial litigation finance companies do not offer consumer funding.
- Law firm lending – Recourse loans for working capital, including marketing and case expenses, often supporting injury and mass tort practices.
Conflating these models is like confusing life insurance with property/casualty insurance. Both involve risk transfer, but they operate in fundamentally different ways, have different users and different investor bases, and involve different regulatory issues.
Themes That Emerged
Several critical points surfaced repeatedly during the roundtable, each of which undercuts the narrative that legal finance contributes to social inflation:
- Insurance Exposure – Commercial funders focus on capital-intensive B2B cases, not insured personal injury litigation.
- Impact on Verdicts – Injury litigation is typically self-financed or debt-financed by trial lawyers; the commercial market is separate.
- Industry Size – AUM is a misleading metric for market size. The U.S. commercial legal finance sector employs only a few hundred professionals; But even assuming current AUM metrics, commercial litigation finance is extremely small relative to nearly any other sector of the legal, insurance, or risk markets.
- Mass Torts and Personal Injury – These cases are financed through credit facilities, not equity investments; returns are interest-based.
- Settlement vs. Trial – Funders prefer settlement because trials and appeals add risk and delay.