Litigation Funding and the changing claims environment

Litigation funding has evolved from a means of financing legal costs into a sophisticated global claims ecosystem. Understanding who is financing litigation, how claims are assembled and where capital is being deployed is becoming an increasingly important part of assessing exposure for insurers.

In a recent webinar as part of our Insurance Emerging Risk programme, contributors from across multiple jurisdictions discussed how litigation funding is influencing claims activity, collective actions and dispute strategy. 

Third-party litigation funding now supports far more than legal fees. In larger matters, funding may be used for claim identification, claimant acquisition, expert evidence, technology platforms, data management, after-the-event insurance and the operational requirements of claimant law firms. This infrastructure can transform isolated disputes into coordinated portfolios of claims and influence where proceedings are brought, how long they continue and when settlement becomes commercially attractive.

For insurers, the issue is no longer simply whether a claim is funded, but how funding affects claim frequency, severity, duration and strategy. Understanding the economics behind a claim is increasingly as important as understanding its legal merits.

Funding as part of the claims architecture

In larger disputes, funding often sits within a broader commercial framework. Capital may be committed long before proceedings are issued, supporting investigations, claimant recruitment, expert evidence and claims aggregation. Funding can also support the technology and operational infrastructure needed to manage large claimant groups.

The investment decision itself can shape litigation strategy. Claimants who have transferred much of the financial risk may be more willing to pursue lengthy proceedings or reject early settlement offers. Funders typically assess a claim's merits, value, duration, enforceability and prospects of recovery before committing capital.

This does not mean funded claims are inherently weak. Funding can enable strong and legitimate claims to proceed where claimants would otherwise be unable to bear the cost and risk of litigation. However, funding has become an operational feature of litigation risk and should be considered accordingly.

Transparency and disclosure

A recurring theme across many jurisdictions is transparency. From a defendant and insurer perspective, early visibility of litigation funding arrangements can help identify the broader claims ecosystem, assess defence strategy and evaluate whether procedural measures such as security for costs may be appropriate.

Disclosure requirements vary significantly between jurisdictions, but the underlying objective is consistent: understanding who is financing the claim and how the litigation is structured can provide valuable insight into claimant behaviour, settlement expectations and potential litigation strategy.

Collective redress and mass claims

One of the most significant developments in litigation funding is its role in collective redress. Claims involving relatively small individual losses may be uneconomic to pursue separately, but when thousands of claims are aggregated, they can become commercially viable investments.

This model is increasingly relevant to:

• Consumer and financial product disputes
• Competition claims
• Data protection and cyber incidents
• Technology-related disputes
• Product liability claims
• ESG-related litigation
• Shareholder actions
• Other mass-claims scenarios

Funding enables claims that might otherwise be uneconomic to pursue, while also providing claimant teams with resources to pursue test cases, appeals and cross-border actions. For insurers, this may contribute to increased claim volumes, longer claims lifecycles and greater aggregate severity.

Funders remain highly selective, typically seeking sufficient quantum, a credible defendant, a coherent legal theory and a realistic route to recovery. Understanding these characteristics can help insurers identify the emerging exposures most likely to attract funding.

A fragmented global regulatory landscape

The regulation of litigation funding varies considerably around the world, creating challenges for insurers managing multinational claims and programmes.

England and Wales

Litigation funding is well established, but questions remain around transparency, regulation and enforceability. Disclosure of funding arrangements can be valuable to defendants, helping them understand how a matter is being financed and supporting the development of an appropriate defence strategy.

United States

The United States has no uniform federal framework, with funding largely governed by state law. Approaches to disclosure, enforceability and funder involvement differ significantly between states, although there is growing interest in greater transparency and consumer protections.

Funding obligations can also affect settlement negotiations by increasing the amount required to achieve an acceptable net recovery for claimants, potentially widening the gap between the parties.

Australia

Australia is widely regarded as one of the world's most mature litigation funding markets and a leading jurisdiction for funded class actions and large-scale commercial disputes. Its established class action regime, adverse-cost protections and judicial oversight have created a sophisticated and relatively predictable environment.

Funding is common across shareholder, consumer, privacy, insolvency and ESG-related claims. For insurers, funded actions are often well-resourced and strategically managed, making them potentially more complex and expensive to defend.

European Union

There is no comprehensive EU-wide funding regime. The principal EU requirements focus on collective consumer actions and include safeguards relating to conflicts of interest, transparency and funder influence. Beyond that framework, approaches continue to vary between member states.

Germany: Litigation funding is permitted and the market is well established, with no statutory restrictions on funding commercial litigation or arbitration. Activity has grown steadily, with funded claims often bundled and assigned to a special purpose vehicle - a structure the Federal Court of Justice has confirmed as permissible in principle. The statutory collective redress regime is, however, an exception: representative actions are subject to a strict cap on the funder’s share of the recovery, conflict-of-interest restrictions and mandatory disclosure of the funding arrangement to the court, which has limited funder appetite for that route in Germany.

The Netherlands: A prominent venue for collective actions. Funded claims must pass through a detailed admissibility stage, during which courts scrutinise issues such as claimant representation, claim similarity and aspects of the funding structure before cases progress to the merits stage.

Poland: Illustrates how a claimant ecosystem can develop in the absence of a detailed statutory framework. Funding arrangements are typically contractual, with capital often flowing to claimant law firms rather than directly to claimants.

Investment can support portfolios of mass claims, claims acquisition campaigns and technology used to identify, screen and process claims. As earlier waves of litigation decline, this infrastructure can be adapted to pursue new categories of claims, including those affecting insurers.

United Arab Emirates

The UAE has no single litigation funding regime, with different approaches applying across its court systems and arbitration frameworks. Its significance for insurers, however, extends beyond locally funded claims.

As a major source of international investment capital and large-scale projects, the UAE plays an important role within the wider global funding ecosystem. Regional investors may support litigation pursued in other jurisdictions, while UAE-based assets may become relevant for enforcement strategies.

Technology and the industrialisation of claims

Technology is likely to accelerate the growth and sophistication of litigation funding. Increasing use of data analytics and artificial intelligence is improving the ability to:

• Identify viable claims
• Review large volumes of documents
• Analyse contracts and claimant data
• Automate claimant onboarding
• Model damages and settlement outcomes
• Monitor portfolio performance
• Compare jurisdictions

These developments may reduce the cost of assembling and managing claims portfolios, making previously uneconomic cases commercially viable. At the same time, improved modelling may allow funders to become more selective and disciplined in how capital is deployed.

Technology may have implications for both claim frequency and severity, enabling claimant groups to form and scale more rapidly than in the past.

Cross-border exposure

Litigation capital is highly mobile. A single event may generate regulatory investigations, arbitration, collective proceedings and individual claims across multiple jurisdictions. Claimant teams increasingly consider collective redress mechanisms, disclosure rules, cost recovery regimes and local attitudes towards funding when choosing where to bring proceedings.

As a result, insurers should avoid assessing exposure solely through a domestic lens. Effective management of cross-border claims often requires early coordination between claims teams, policyholders, coverage counsel and local advisers.

Looking ahead

Litigation funding is unlikely to retreat from the disputes landscape. Its future development will instead be shaped by regulatory reform, judicial scrutiny, technological innovation and the profitability of funded claims.

While greater transparency may emerge in some jurisdictions, global inconsistency is likely to remain. Capital will continue to flow towards claim types and jurisdictions offering the clearest rules, most effective collective mechanisms and strongest prospects of recovery.

For insurers, monitoring litigation funding is increasingly about understanding the infrastructure that sits behind claims generation and escalation, rather than simply identifying whether funding is present.

Get in touch with our litigation funding specialists to strengthen your approach and stay ahead of regulatory risk.