Understanding Social Inflation: A Global Phenomenon Affecting Insurance Costs

Social Inflation: Beyond the United States

Social inflation, a phenomenon where insurance claims costs rise faster than general economic inflation due to legislative and litigation trends, is not confined to the United States. During a recent webinar hosted by the Greenberg School of Risk Management at St. John’s Tobin College of Business, experts discussed how social inflation is spreading to other countries, though not as intensely as in the U.S. Annette Hofmann, Ph.D., a professor of actuarial science, highlighted that the impact of social inflation in the U.S. has been most evident in commercial auto liability insurance.

Causes and Consequences of Social Inflation

James Lynch, Chief Actuary of Triple-I, explained that litigation finance, societal attitudes toward corporations, and large jury payouts are driving social inflation. Lynch presented data showing a steep increase in incurred losses in commercial auto liability since 2010. Triple-I’s study on social inflation linked it to rising loss development factors in long-tailed liability lines such as Commercial Auto, Medical Malpractice, and Other Liability. This trend challenges standard actuarial practices, as the pattern of reported losses is increasing unpredictably.

Global Implications and Practical Advice

Lynch also discussed potential reasons for large jury payouts, including societal pessimism and the normalization of huge monetary figures in media. Other speakers at the webinar, such as Jonathan E. Meer and Jeff Cordray, addressed tort reform and the importance of determining economic damages. Given the global implications of social inflation, it is crucial for insurance professionals to stay informed and adapt their strategies accordingly. For readers, staying updated on legislative changes and understanding the societal factors influencing jury decisions can help mitigate the impact of social inflation on insurance costs.