Swiss Re, a global reinsurance company, has warned that liability insurance claims in the UK could face further cost pressures as the government considers reforms to litigation funding, collective redress and product liability.
In a report published by the Swiss Re Institute, Senior Economist Arnaud Vanolli examines how legal and regulatory developments could affect claims growth, insurers and businesses, and highlights the potential role of safeguards in balancing access to justice with economic considerations.
According to Swiss Re, non-economic factors added around five to six percentage points to UK liability claims growth in 2024, beyond the increase explained by macroeconomic conditions.
The company estimates that these factors have accounted for approximately half of liability claims growth since 2020, marking the fifth consecutive year of elevated liability excess inflation.
Swiss Re attributes this trend partly to changes in legislation, legal procedures and litigation practices. It notes that third-party litigation funding, which enables claimants to pursue legal action in return for a share of any compensation or settlement, can make more cases financially viable. However, the company says such arrangements may also reduce incentives for early settlements in some circumstances.
Collective redress mechanisms are another area of focus for Swiss Re Institute. Under opt-out arrangements, eligible claimants are automatically included in a group action unless they choose to withdraw, potentially increasing the number of people involved and the overall value of claims. The company highlights the development of collective actions in UK competition law following the Supreme Court’s 2020 ruling in Merricks v Mastercard as an example of how the legal framework has evolved.
Swiss Re also points to the Building Safety Act 2022, which extended potential liability in the construction and property sectors, as a factor that may have contributed to claims inflation. It adds that the development of litigation funding and claimant recruitment practices has also played a role.
The company says several regulatory developments could influence the future direction of UK liability claims. These include the government’s plans to reverse the effect of the 2023 PACCAR ruling on certain litigation funding agreements, reviews of collective action procedures and proposals to modernise product liability legislation to address risks associated with digital technologies and artificial intelligence.
The government has stated its intention to support access to justice while promoting fairness and transparency in litigation funding. However, Swiss Re notes that the impact of potential reforms will depend on their final design and implementation. At the time of the report, legislation to reverse the PACCAR decision remained pending.
Swiss Re says a reversal could improve the economics of litigation funding and lead to increased legal activity. It also highlights the possibility that broader opt-out collective action frameworks could increase the size of claimant groups and extend claims activity into additional sectors.
Product liability reform presents a separate consideration. The UK is reviewing legislation introduced in 1987 to address harm arising from digital technologies and AI. According to Swiss Re Institute, any resulting change in insurers’ exposure will depend on how the revised framework balances consumer protection with the interests of businesses developing products and technologies.
The company identifies public liability, product liability, professional liability and cyber insurance as areas that could be particularly affected by changes to collective redress and product liability rules. Construction, engineering, AI and technology are among the sectors where the impact could be significant. Environmental liability could also generate large claims, while employers’ liability and medical malpractice may be less exposed because claims in these areas tend to be more individual in nature.
Swiss Re warns that higher litigation and settlement costs could have wider economic consequences, potentially affecting business investment, research and development, competitiveness and the cost of goods and services. However, it acknowledges that these considerations must be weighed against the potential benefits of improving access to compensation for consumers.
The company argues that regulatory safeguards could help manage the potential impact on liability claims inflation. These include greater transparency around litigation funding arrangements, preserving claimants’ control over litigation and settlement decisions, ensuring that claimants remain the primary beneficiaries of settlements, and maintaining proportionality between compensation and legal costs.
Swiss Re also highlights alternative dispute resolution as a possible way to improve access to redress without requiring court proceedings or litigation funding. It notes that the Civil Justice Council has recommended a light-touch approach to litigation funding regulation, including disclosure requirements and measures to protect claimants’ interests.
According to Swiss Re, the central policy challenge is to balance access to justice with a proportionate legal framework that supports consumer protection, business investment and economic growth. The company concludes that the direction and scale of future liability claims inflation will depend on how the proposed reforms are implemented and whether appropriate safeguards are established.
