Why E&O Claims will Increase
E&O claims will increase because private equity is funding plaintiffs' suits. It is really pretty simple. Many people and attorneys cannot afford to bring suits using only their own financial resources. Additional funding can greatly help them bring suits.
More businesses have suffered losses, not necessarily insurance claims, due to the economic shutdown than any time since the Great Depression. A lot of pain exists. A lot of anger exists. If someone gives you a lifeline, you probably are more likely to take it now than ever. A phenomenal example of this is how Century 21, a bankrupt retail store, has sold its $175 million insurance claim to its creditors (December 7, 2020 Insurance Journal). The article notes this claim is its most valuable asset!
Match desperation with money, lots of money. According to a CNBC article from June 2020, private equity has $9.5 billion in assets under management related to commercial litigation financing in the U.S. alone! Forty or so entities are providing the financing. The median return from one such firm is 52% for resolved cases after fees and expenses on an annualized basis!!!!!! Such investments are not for risk adverse people, but in a time of basically 0% interest rates, a potential 52% return is awfully appealing so my guess is these funds will attract more and more money.
Another factor is the loss of small agencies. Small, hometown agencies generate sympathy at times. Big agencies owned by private equity do not garner much sympathy from anyone and thus the Plaintiff’s odds of winning the case increases. In fact, in the CNBC article, one fund that has invested in 103 cases notes that it has a 70%-win rate of those cases that have been resolved.
Here is the good news: You can get ahead of this with better E&O risk management. The best outcome of great E&O risk management is increased sales and simultaneously reduced E&O risk -- at least with the way I approach the opportunity increased sales and reduced E&O risk is the common outcome. If you are interested, and how can you not be, in reducing your risk and increasing sales, let me know. Private equity's countdown has begun.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.