Because Bruce Springsteen Cares and Insurance Companies Don’t
You buy a ticket to see Bruce Springsteen for $150 and then resell it for $350. Why are you able to do this? Because the face value of a Springsteen ticket is artificially low. Bruce could set a higher price but he chooses not to. It’s a noble but failed effort on his part to go easy on his fans. I say “failed” because ultimately the market will adjust the price to reflect its true value. As long as there are folks lining up to pay considerably more than face value, third party ticket resellers will remain incentivized to take advantage of the economic opportunity presented thereby. What about insurance companies?

Say you’re involved in a car accident and you make a claim against the at-fault party’s insurance company to recover for your injuries. Reasonable minds agree that your claim is worth between $25K-$35K. However, the insurance company offers to settle (“buy”) your claim for only $15K. Like Springsteen, the insurance company is setting an artificially low price, albeit for very different reasons, and thereby creating an economic opportunity for a third party, in this instance a consumer legal funder (aka litigation funder). Keep in mind, even though the insurance company is technically a buyer under this scenario, for much of its history it has been the only possible buyer. As such, it has enjoyed Springsteenesq power in terms of price setting; that is, until the advent of litigation funding.

If insurance companies object to the rise of litigation funding, it’s because funders have created a market for claims where previously none existed. Think about that. In this new market, insurance companies face competition. That’s good for consumers. It means claimants now stand a much greater chance of realizing the true value of their claims. Absent litigation funding, the only buyer of a claim against XYZ insurance company is … XYZ insurance company. A market of one is no market at all.

Without markets, consumers suffer.