Social Inflation Impacts to Liability Lines of Insurance Coverage
As if inflation isn’t bad enough, there are now various types of inflation. One such type is social inflation.
Social Inflation is widely viewed as rising claim costs beyond normal economic inflation factors. Such factors as society’s anti-corporate opinions as well as changing views and actions related to perceived social injustices weigh heavily in this phenomenon.
Social Inflation Causes Rising Insurance Costs
Social inflation is the main catalyst leading to rising costs in the commercial liability market and mainly impacts the commercial trucking, medical malpractice, professional liability, Directors and Officers, and product liability lines of coverage.
Various trends are impacting and pushing social inflation, including:
- public sentiment, often driven by legal advertising
- tort reform
- third-party litigation funding
- expanding class-action lawsuits
- medical cost inflation
- emerging risks
Legal Issues Stemming from Social Inflation
The plaintiff’s bar has been creative in finding ways to feed off of jury’s emotions, such as fear and anger. This increase in aggressive behavior includes leveraging the rising political and socioeconomic polarization in the U.S. to its advantage.
More and more often it feels as if there are no longer such things as accidents. Rather, there is always somebody to blame…and sue.
Tied closely to social inflation is the rise in nuclear verdicts, verdicts (typically over $10 million, often including punitive damages) high enough to threaten a company’s viability. Warren Buffett has described nuclear verdicts as, “a broadening definition by society and juries of what is covered by insurance policies.”
According to a 2020 American Transportation Research Institute study, verdict awards of over $10 million nearly doubled in the previous decade. These types of outcomes can leave businesses underinsured, or in the case of punitive damages, possibly uninsured.
Social inflation and nuclear verdicts have placed a great deal of fear into insurance carriers and defense counsel. It is simply far more difficult to predict litigation outcomes than in the past as seen in examples from Texas to Minnesota and all across the country.
How to Curb Insurance Issues Tied to Social Inflation
While social inflation is better understood now in the insurance industry, there are many actions businesses can do to help curb the tide. This includes:
- thoroughly investigating accidents or allegations both internally and in-step with their adjusters
- promptly reporting claims to the carriers so they can quickly begin documenting supporting evidence to best defend their clients
- actively participating in the litigation and case evaluation even if with insurance company assigned defense counsel and keeping an eye on both loss and defense expenses
Our Holmes Murphy and CSDZ teams recently addressed not only general inflation, but social inflation in a recent event titled “Curbing Inflation’s Impact: Performing in an Inflationary Environment.” If you didn’t have the chance to attend but are interested in learning more, click here for a recording of the event. You can also reach out to us and we’d be happy to discuss the topic and actions we recommend!
Published on: 09.29.22