How Social Inflation Has Affected Commercial Liability

Social inflation is one of the biggest reasons for the rapid increase of loss in the commercial liability market. Likewise, it is causing serious issues within the insurance industry and beginning to affect clients.

Social Inflation

The term ‘social inflation’ refers to societal factor impacts, including but not limited to:

• Legal advertising
• Litigation funding
• Expanding class-action lawsuits
• Public distrust of corporate defendants

These matters all significantly impact insurance claims, jury awards, and settlements. Social inflation appears to be prominent throughout most commercial liability risk cases, especially bodily injury and wrongful death claims. Multiple factors are causing social inflation, such as the fast-increasing aggression of many attorneys of plaintiffs’ which has made a difference in the strategies they use to litigate cases. Plus, the plaintiffs’ bar uses the general unrest in society to their advantage for an array of political and socio-economic issues, using emotions to make their arguments resonate. The re/insurance industry has struggled to address social inflation because of the inadequate data and segment individual social inflation factors. Metrics used to be the go-to method for gaining a better understanding of the impacts of social inflation. However, it is not also the most effective. Coming up with a solution to the inflation issue remains difficult.

The Deeper Look at the Impact

The lines of insurance business affect many areas of business within a vast range of industries, all facing precarious market conditions. Insurers are increasing rates and restricting coverage, and that increases client premiums. Social inflation is an issue in all areas where the plaintiffs’ bar has become skilled from a psychological and social standpoint. Accidents happen, but people seem to naturally point fingers and try to make it someone else's fault regardless of the circumstance. There are a few methods available to help manage the risk of social inflation, such as re-underwriting their portfolios, controlling limits, and mandating risk adequate pricing. Some insurers are taking advantage of using a cross-functional team with expertise in claims, legal, underwriting, actuarial, and data analytics to improve the commercial liability business segment. Controlling legal spending and defense costs has not worked out well for the insurance industry.

Appropriate Investments

It is essential to consider the necessity for appropriate investments in litigation to prepare cases properly. Fully understanding what drives the plantiffs' bar and their strategies is valuable. It might require some upfront expense but allow insurers to recognize what they’re up against at an earlier time. Understanding the benefits and evolution of commercial liability insurance can make all the difference while proceeding with a claim.

About David G. Sayles Insurance Services

At David G. Sayles Insurance Services, we help our clients decide which of these options is best for them based on their current situation and risk factors. Contact us at 1-855-977-1842 or insureme@dsayles.mysites.io for a consultation!