Social Inflation Goes Nuclear

The July edition of Best’s Review ran an article called, “Social Inflation Remains a Thorn in the Side of Casualty Insurers”. The article reflects the evolving psychology of some policyholders and the corresponding expectations that yield suspicion of corporations and assumptions about corporations’ abilities to inflate compensatory damages:

Social inflation continues to test the ability of casualty insurers with unpredictable and excessive claim costs … a reflection of shifting social and cultural attitudes toward corporations … when people have claims or file claims … they’re looking at the deep pockets of the corporations and figuring that, “Hey, somebody has to pay for my misfortune” … A lot of that led to an increase in lawsuits … [and] the erosion of tort reform in a number of states.

In other words, we may be facing the proverbial perfect storm of social inflation and nuclear verdicts.

What is Social Inflation?

Social inflation denotes the increase in claim severity above the historical norms of economic inflation and claim trends, in which the rising costs of insurance claims are driven by societal trends and views toward litigation, rather than just general economic inflation. Those trends include changes in public perception and attitudes toward corporations, liability, and risk-taking that can lead to increased litigation and larger jury awards. They include the involvement of outside parties in funding lawsuits that drive up litigation costs. They include reversals of tort-reform measures that were intended to protect insurers from insolvency. And they include varying demographic makeups of jury pools that can influence jury verdicts and awards. The upshot is that those trends lead to increased claim costs, higher premiums, and reduced profitability for insurers.

What is a Nuclear Verdict?

Nuclear verdict denotes verdicts in favor of plaintiffs with damage awards that surpass $10 million. Such verdicts are considered nuclear because they can have devastating effects on defendants, potentially causing financial hardship and bankruptcy. Nuclear verdicts often involve complex cases, such as product liability, medical malpractice, or catastrophic injuries. The increase in nuclear verdicts is attributable to a number of things, including the changing attitudes toward corporations mentioned above, increasingly aggressive plaintiff attorneys, the increasing numbers of class-action lawsuits, the increasing cost of healthcare and medical treatments, and more. The proliferation of nuclear verdicts is a source of concern and consequence for the insurance industry and defense litigators. They lead to increased insurance premiums, reduced coverage options, and a greater risk of financial ruin for defendants. As a result, there is a growing need for effective risk management strategies, litigation tactics, and claim management techniques to mitigate the implications of these verdicts.

Start at the Beginning

We can’t say your core processing suite can save you from all the effects of social inflation and nuclear verdicts. There are regulatory and legal issues to be resolved, as well as social attitudes to be examined and mitigated. But the right suite — one with the flexible configuration capabilities to enable you to anticipate and adapt — will have you better positioned before social inflation goes nuclear.

If you happen to be looking for such a suite, we know some guys.