The Growing Threat of Social Inflation: How It's Impacting Insurance Costs and What You Can Do About It

Understanding Social Inflation

Social inflation refers to the increase in liability risks and costs due to litigation trends. A recent white paper by the Insurance Research Council (IRC) highlights that insurers' losses across various business lines have accelerated significantly in recent years, far beyond what economic inflation alone can explain.

Drivers of Social Inflation

The IRC identifies several key drivers of social inflation, including shifts in public sentiment about litigation, increasing numbers of large jury verdicts, and the proliferation of class actions. For instance, a study by the RAND Institute found that the average jury award in the U.S. has increased by 50% over the past decade, significantly outpacing inflation rates.

Impact on Businesses and Consumers

These trends lead to rising claims and losses, ultimately resulting in more expensive insurance for businesses and consumers. According to a report by the Insurance Information Institute, commercial insurance premiums have risen by 10% annually over the past three years, a trend that is expected to continue as social inflation pressures persist.

To mitigate the impact of social inflation, businesses and consumers should consider reviewing their insurance policies regularly, seeking out insurers that offer comprehensive coverage, and staying informed about legislative changes that could affect their liability risks.