High UK liability claims growth could increase without balanced reforms

Liability claims growth in the UK is facing growing pressure from non-economic factors. Liability excess inflation added about 5–6 percentage points to claims growth in 2024 and has accounted for around half of claims growth since 2020. We see this trend as partly driven by a landscape conducive to third-party litigation funding and collective redress that can contribute to increased litigation activity and settlements. Regulatory developments under consideration could add further pressure on liability claims growth, depending on their final form. Increased litigation funding transparency, safeguards on funder control, and promotion of alternative redress mechanisms may help retain a balanced litigation environment.

Non-economic factors continue to contribute materially to liability claims growth in the UK. Our updated liability excess inflation (LEI) index for the domestic UK market, based on the latest available data, shows that these factors added about 5–6 percentage points to claims growth in 2024, beyond that explained by macroeconomic factors.

This marks the fifth consecutive year of elevated LEI in the UK, with non-economic factors accounting for around half of UK liability claims growth since 2020. Several important legal and regulatory reviews are also underway, covering litigation funding, collective redress and product liability. While designed to improve access to justice and update legislation for the digital economy, the final shape of these reforms could materially influence future liability claims costs.

Our LEI index measures the increase in liability insurance claim severity beyond that explained by economic variables such as medical inflation, wages and GDP growth.  It captures the share of claims growth driven by non-economic factors, which can be broadly grouped into three categories. Changes in substantive law can broaden the scope of what can be litigated, such as in AI and product liability. Developments in legal procedures can make it easier to bring and pursue cases, including through the wider use of collective redress and third-party litigation funding (TPLF). TPLF refers to the use of third-party financing provided in advance to prospective claimants in exchange for a share of any legal compensation or settlement amount, thereby enabling more cases to be brought while potentially disincentivising early settlements. Collective redress regimes can either automatically aggregate potential claimants and let them opt-out of the class, or require claimants to opt-in. Opt-out regimes may lead to an increase in aggregate insurance claims exposure due to the larger number of claimants. Evolving legal norms and attitudes can also influence activity, such as with the emergence of more entrepreneurial claimant-side lawyers who may have greater propensity to sue and pursue higher-value awards.

The UK LEI index covers risks located domestically and should therefore exclude most direct exposures to US liability risk, including through the London Market. However, it is still likely that some policyholders of UK insurers may have limited US operations.

While the US remains the epicentre of social inflation, UK LEI has climbed more quickly than in European markets such as Germany and has, like Australia, experienced periods of elevated LEI alongside an active litigation funding and class action environment (see Figure 1).

From 2020, pandemic-era fluctuations in economic and court activity partly contributed to liability excess inflation in the UK. More broadly, we see the influence of structural factors behind these UK developments, including changes in substantive law, legal procedures and behavioural norms. The Building Safety Act of 2022 extended potential liability in the construction and real estate sectors, while the continued development of litigation funding and the claimant recruitment system have also contributed to LEI growth.

The Merricks v Mastercard Supreme Court ruling in late 2020 strengthened opt-out collective redress in the competition law space,  which led to a material increase in both the number and size of class actions (total value of EUR 155 billion in 2024, up from EUR 69 billion in 2019).  While cases in the Competition Appeal Tribunal are not typically covered by insurance and do not impact the LEI index directly, they remain relevant for insurers and reinsurers. The tribunal appears to be grappling with how best to handle opt-out cases backed by TPLF, and its procedures may become a blueprint for other courts if opt-out procedures are more widely permitted.

Other developments likely acted as a counterweight. Chiefly, in July 2023, the PACCAR ruling effectively made some types of litigation funding agreements unenforceable, temporarily constraining some litigation funding activity and creating legal uncertainty. However, the stabilisation of the LEI index in 2023 cannot be directly attributed to this ruling. Many cases with funding already in place are ongoing, either because they did not fall within the PACCAR ruling's purview or their arrangements were altered to comply with the law. Legal and regulatory developments can take several years to start impacting liability insurance claims.

Ongoing reforms to collective actions and litigation funding could intensify the UK's liability excess inflation in coming years. Cases such as Merricks v Mastercard illustrate judicial scrutiny around whether returns to claimants are sufficient. The UK government has committed to promoting a fair and efficient TPLF framework for all parties.

First, following the June 2025 Civil Justice Council (CJC) report and recommendations on TPLF regulation, the UK government announced plans to reverse the PACCAR decision through legislation, although not retrospectively. In December 2025, the Ministry of Justice restated this commitment, seeking to preserve access to justice through litigation funding while promoting fairness and transparency.  In July 2026, the Solicitors Regulation Authority also launched proposals to strengthen consumer protections, including requirements on law-firm independence from funders, transparency for clients and oversight of funding risks, after identifying cases of poor consumer outcomes and financial risks at some firms handling high-volume claims.

At the date of writing, UK government legislation on litigation funding agreements remains pending. The government reaffirmed its commitment to legislate in early September 2026, but other reforms on the agenda of new PM Andy Burnham may take priority. Amid continued uncertainty around litigation funding in England and Wales, some funders may look to other territories, such as the Netherlands, where the legal framework is more favourable to TPLF. If PACCAR is reversed, however, we expect litigation activity in the UK to increase.

Second, in parallel to TPLF, the broader procedural framework for collective redress in the UK is also being reassessed, although the implications for liability insurers remain uncertain. If implemented, opt-out regimes in consumer law could increase LEI pressures in the UK by increasing the size of claimant pools and improving funding economics.  The Law Commission of England and Wales  is investigating whether the government should introduce a new consumer class action framework on top of the existing competition law framework.  Key design questions include the opt-in vs opt-out nature of the regime and its scope.

Scotland already has a collective redress regime covering a broad range of civil claims, although it has so far been limited to opt-in cases. However, the Scottish Civil Justice Council is considering introducing an opt-out procedure for group proceedings, which is already permitted under Scottish legislation, and discussions on its format are ongoing.  Moreover, the existing competition law opt-out framework is also under review, although the government does not currently plan to extend it beyond competition law into areas of greater underwriting relevance. Proposed changes aim to better filter out speculative claims, encourage the use of alternative dispute resolution, but also bring more certainty to funders.

The third important moving piece concerns substantive law, which could affect the underlying scope and basis of liability itself. A separate review aims to modernise the UK's product liability regime set up in 1987, to address harms arising from digital technologies and AI. Here too, the government explicitly states it wishes to balance the interests of consumers and businesses.  Therefore, the impact on insurers is uncertain and depends on that balance.

Overall, the changes being considered have striking parallels to the implementation of the Representative Actions Directive (RAD) and Product Liability Directive (PLD) in the EU, with the fast-developing TPLF market making those changes more impactful. In the EU, we expect these directives to contribute to higher claims severity in liability insurance driven by non-economic factors in the coming years.

These regulatory developments may accelerate LEI growth in the UK, particularly if they broaden the scope of opt-out collective actions. While the government's stated economic growth mandate provides some basis for a pragmatic implementation,  insurance industry participants note that these developments could bring about faster claims growth across multiple liability lines of business.

Insurance categories most exposed to collective redress and product liability may face the greatest impact, including public, product and professional liability as well as cyber insurance, especially in areas such as construction and engineering, as well as AI and technology. Environmental liability could also give rise to large claims. Both bodily injury and property damage exposures may be relevant. By contrast, medical malpractice and employers' liability are more individual in nature and may therefore be less exposed.

Potentially higher litigation and settlement costs associated with the above changes to the UK legal environment may have broader economic impacts for firms and economies. Possible effects include a reduction in private investment and R&D, reduced competitiveness, costlier goods and services and weaker trade. These effects may be weighed against potential benefits to consumers. The think tank ECIPE estimates that TPLF-supported collective redress in the UK would lead to costs and compensation of GBP 11.9 billion for UK firms in a median scenario.  A comparison with the EU is also useful, where similar procedural and substantive law changes are already being implemented. ECIPE estimates that the EU's PLD alone may reduce its GDP by 0.17–0.24% and UK firms' exports to the EU by 0.9%.

The ongoing reviews and updates to the collective redress and litigation funding regulatory framework in England and Wales could have material implications for the UK economy and its liability insurance environment, depending on their final implementation. The policy challenge is to balance access to justice with safeguards that support a targeted and proportionate system and the government’s broader economic growth objectives.

Relevant considerations include improving transparency in litigation funding arrangements, increasing the share of recoveries reaching claimants, maintaining proportionality between damages and legal costs, promoting the availability of alternative redress mechanisms where appropriate, and supporting legal certainty for businesses developing new products and technologies.

The planned PACCAR reversal brings these considerations into particular focus. We expect the UK government to follow some of the recommendations of the Civil Justice Council, which has recommended light-touch regulation of litigation funding. The recommendations include disclosure of funder involvement, preserving claimants' strategic control over litigation and settlement strategy, and ensuring that claimants remain the primary beneficiaries of settlements while allowing proportionate returns to funders. The Council also recommended that the UK government considers alternative dispute resolution mechanisms, which could provide access to redress without requiring court proceedings or litigation funding.