The Trend Toward Social Inflation Verdicts and their Impact on Liability Costs
Social inflation is a buzzword that is reverberating throughout the insurance industry. According to AnneMarie McPherson, news editor of the Big “I”‘s IA Magazine, “social inflation happens when juries and courts increasingly side with plaintiffs in claims against corporations, which in the insurance world leads to rising litigation costs and their impact on insurers’ claim payouts, loss ratios, and, ultimately, how much policyholders pay for coverage.”
What accounts for this complex phenomenon? There are a number of factors that both Insurance Business Magazine and the International Risk Management Institute, Inc. (IRMI) dive into, but overall, such shifts in social attitudes cause an increase in liability expenses for insurance companies which effects every insurance market, insurance agencies and their clients.
Earlier this year, Leaders Edge reported that overall, “settlement statistics show a spike in 2018 in the largest U.S. verdicts” and recent increases in premiums have affected D&O, umbrella, average commercial lines, medical malpractice, and commercial auto policies. While there could be a number of causes for these rate increases, social inflation is listed as a leading contributor. They shared an example of a case won by the plaintiff who won a $229.6 million settlement after filing a lawsuit accusing Johns Hopkins of medical negligence, blaming the hospital for her daughter’s brain damage. Overall, experts quoted in this article say that social inflation is “spreading in a manner that is difficult to predict.”
While social inflation is expected to increase in the near future, rising deductibles and retentions will continue while limits are being reduced. This means that brokers and agents will need to go above and beyond to find coverage for clients. Ahead of policy renewals, it is the role of agents and brokers to anticipate higher rates from carriers, be aware of trends in each line of insurance and in each state that the client is located.
As an insurance brokerage, Rose & Kiernan, Inc. both understands social inflation and is ready, willing and able to have conversations with our clients on its effects including rates of the insured. It is during this time that the agility, creativity and value of a brokerage take center stage. Brokers and agents have and use data and analytics along with claims experience to negotiate better, favorable coverage and terms for clients.
If you have any questions about social inflation or business insurance, please contact Rose & Kiernan, Inc. here or by calling 800-242-2433.