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💰 '''Contingency fee''' is a compensation arrangement — most commonly encountered in insurance through the lens of litigation and [[Definition:Claims handling | claims management]] — under which an attorney or service provider receives payment only if a specified outcome is achieved, typically calculated as a percentage of the recovery or settlement amount. In the insurance industry, contingency fees shape the economics of [[Definition:Liability | liability]] claims, influence [[Definition:Reserving | reserve]] estimates, and affect strategic decisions by both [[Definition:Insurance carrier | carriers]] defending claims and claimants pursuing recoveries.

⚖️ The arrangement operates as a risk-sharing mechanism between the claimant and their legal representative. In the United States, where contingency fees are deeply embedded in the personal injury and mass tort landscape, plaintiffs' attorneys routinely take cases against insurers on a "no win, no fee" basis, receiving 25% to 40% of any [[Definition:Settlement | settlement]] or judgment. This model significantly lowers the barrier for individuals to bring [[Definition:Bodily injury (BI) | bodily injury]], [[Definition:Medical malpractice insurance | medical malpractice]], and [[Definition:Product liability insurance | product liability]] claims, which in turn drives [[Definition:Loss cost | loss costs]] and [[Definition:Claims frequency | claims frequency]] across casualty lines. In the UK, the conditional fee agreement (CFA) — a related but distinct structure — was reformed under the Jackson Reforms of 2013, shifting the cost of success fees from defendants (often insurers) to claimants. Other jurisdictions, including Germany and Japan, either prohibit or strictly limit contingency arrangements, producing materially different litigation environments and, consequently, different [[Definition:Loss ratio | loss ratio]] profiles for casualty insurers operating in those markets. Beyond litigation, the term also appears in insurance distribution: some intermediaries, particularly in large commercial and [[Definition:Reinsurance | reinsurance]] placements, receive [[Definition:Contingent commission | contingent commissions]] — fees contingent on the profitability of the book of business they place — which regulators have scrutinized for potential [[Definition:Conflict of interest | conflicts of interest]].

📊 From an insurer's perspective, the prevalence and structure of contingency fee arrangements in a given market directly affects [[Definition:Underwriting | underwriting]] strategy and pricing. Markets where contingency fees are common tend to exhibit higher [[Definition:Litigation risk | litigation rates]], larger average claim sizes, and greater variability in outcomes — phenomena that contribute to what the industry calls [[Definition:Social inflation | social inflation]]. [[Definition:Actuarial science | Actuaries]] modeling U.S. casualty reserves, for example, must account for the incentive structure that contingency fees create: attorneys are motivated to maximize recoveries and are more likely to pursue marginal claims when their downside is limited. Understanding the contingency fee landscape is therefore an essential part of pricing and reserving for any insurer writing liability business across jurisdictions.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Social inflation]]
* [[Definition:Contingent commission]]
* [[Definition:Litigation risk]]
* [[Definition:Claims handling]]
* [[Definition:Loss cost]]
* [[Definition:Conflict of interest]]
{{Div col end}}

Definition:Contingency fee - Revision history

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