Overview
“Social inflation” refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage. While there’s no universally agreed-upon definition, frequently mentioned aspects include:
- Growing awards from sympathetic juries (“nuclear verdicts”)
- Proliferation of class-action lawsuits and “litigation funding” – in which investors finance lawsuits against large companies in return for a share in the settlement
- Rollbacks of tort reforms intended to control costs and legislative actions to retroactively extend or repeal statutes of limitations.
| Social inflation insights from The Triple-I Blog |
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| Lawyers’ group approves best practices to guide litigation funding (Aug. 19, 2020) Social inflation and COVID-19 (Jul. 6, 2020) IRC study: social inflation is real, and it hurts consumers, businesses (Jun. 2, 2020) Florida dropped from 2020 “judicial hellholes” list (Jan. 14, 2020) Florida’s AOB crisis: a social-inflation microcosm (Nov. 8, 2019) |
Is it real?
Some have questioned its existence and derided it as a “hoax.” But a recent paper by the Insurance Research Council (IRC) shows how losses across several insurance lines have accelerated in recent years much faster than economic inflation alone can explain. Using loss data from the National Association of Insurance Commissioners (NAIC), the paper describes social inflation and illustrates these increases.
