Rob Bredahl, the vice-chair of Howden Re, called for reform around abuse of the legal system that is hiking up insurance claim costs.

Speaking at the PwC Insurance Summit today, Mr Bredahl said that during the first half of last year, the American Department of Justice announced 36 False Claims Act resolutions totalling more than $485 million. Some of the verdicts have been labelled “nuclear” or “thermonuclear” because they are exceptionally high.

“There is this attitude in the United States among most people to stick it to big corporations or stick it to the man,” Mr Bredahl said. ”Unless there is real reform, the only thing insurers and reinsurers can do is push back on price, terms and conditions.“

As a result, he said, a lot of business was flowing into excess and surplus lines.

“It is not falling back and I don’t think it will,” he said. “You end up with very expensive core coverages because of the crappy legal system we have.”

He urged everyone in the room to pressure regulators and politicians.

“We need reform,” he said.

Mr Bredahl said the result was insurers and reinsurers putting down smaller limits.

“They want to diversify more,” he said. “If there is some legal wrangling going on, they can toss their limit in.”

Another consequence was that writers of liability business were doing more broadly syndicated deals so that no one really stood out.

He pointed to Florida where several insurance reform bills were signed into law in 2022 and 2023, aimed at stabilising the home insurance market. Among other things, the Insurance Reform Act of May 2022 reduced the deadline for policyholders to report a claim under the policy from two years to one year for a new or reopened claim, and from three years to 18 months for a supplemental claim.

According to the financial website Bankrate, Florida accounts for only 9 per cent of the US home insurance claims but 79 per cent of its home insurance lawsuits, many of them fraudulent. Crooked lawsuits and Florida’s high overall claim risk mean insurance companies faced several years with net underwriting losses of more than $1 billion.

Mr Bredahl said, at first, people were unsure if the legislative changes in Florida would work, but in fact, they worked better than expected.

“Litigation funds have a lot to do with these nuclear verdicts,” he said.

Litigation funding in insurance is a financial agreement where a third party covers the claimant's legal costs in exchange for a financial return, usually a percentage of damages recovered or a multiple of sums invested.

“There is lots of money to pursue crazy lawsuits,” Mr Bredahl said. “I’m a capitalist, but I’m not sure if we should be funding lawsuits. It leads to really bad behaviour.”