Business Insurance Risks & Trends in 2020

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Insurance experts often examine how outside influences and trends affect the insurance marketplace. Businesses should follow suit to determine what factors impact their insurance coverage. For 2020, there are a number of sweeping market developments to consider.

Spotlight on Social Inflation

You may have heard the term “social inflation” used to explain one of the factors driving up the cost of insurance in today’s market. In general, this term refers to societal trends that influence the ever-rising costs of insurance claims and lawsuits. As the insurance market changes, it’s important for businesses to understand what’s currently driving social inflation.

  • Litigation Funding

One of the factors driving social inflation has to do with increased litigation or, more specifically, litigation funding. Litigation funding is when a third party provides financing for a lawsuit. In exchange, the third party receives a portion of the settlement. In the past, the steep cost of attorney fees would often scare plaintiffs away from taking a lawsuit to trial. But, through litigation funding, most or all of the costs associated with litigation are covered by a third party, which has increased the volume of cases being pursued.

Not only is litigation funding becoming more common, but it also increases the cost of litigation, sometimes to seven figures. This is because plaintiffs are able to take cases further and seek larger settlements.

  • Tort Reform

Tort reform refers to laws that are designed to reduce litigation. Specifically, tort reforms are used to prevent frivolous lawsuits and preserve laws that prevent abusive practices against businesses.

Many states have enacted tort reforms over the last several decades, leading to fewer claims and caps on punitive damages. However, in recent years, a number of states have modified tort reforms or challenged them as unconstitutional. Opponents believe tort reforms lower settlements to the point where attorneys are less likely to take on new cases and help victims get justice for their injuries or other damages.

Further complicating matters, tort reform is subject to uncertainty as it’s largely tied to political leanings and the interests of individual states. Should tort reform continue to erode, there could be fewer restrictions on punitive and noneconomic damages, statutes of limitations, and contingency fees – all of which can drive up the cost of claims and exacerbate social inflation.

  • Plaintiff-friendly Legal Decisions & Large Jury Rewards

The overall public sentiment toward large businesses and corporations is deteriorating, and anti-corporate culture is more prevalent than ever. A number of factors are contributing to this increasing distrust, including highly publicized issues related to the mishandling of personal data and social campaigns.

This has had a considerable impact on how businesses are perceived by juries. Organizations are held to a high standard for issues related to the way they conduct their business. In fact, juries are increasingly likely to sympathize with plaintiffs, especially if a business’ reputation has been tarnished in some way in the past. As a result, plaintiff attorneys are likely to play to a jury’s emotions rather than the facts of the case.

Compounding this issue, there’s an increasing public perception that businesses – particularly large ones – can afford the cost of any damages. In the current environment, nuclear verdicts (awards of $10 million or more) have become more common.

Extreme Weather Events Examined

Extreme weather events, such as hurricanes, tornadoes, hailstorms and wildfires, continue to make headlines as they become increasingly devastating and costly, impacting businesses and residents across the U.S.

In 2019, wildfires plagued the West Coast; California alone recorded more than 47,000 wildfires. In the Midwest, flooding along the Mississippi River and its tributaries caused an estimated $6.2 billion in damage across 13 states. On the East Coast, the hurricane season caused billions of dollars in damage and affected multiple states along the Atlantic Ocean. As disasters such as severe storms, extreme temperatures, wildfires and flooding become more frequent, the insurance industry and the economy will likely struggle to keep up with the losses.

Moving forward, expect to see more emphasis around weather readiness, especially from an insurer’s perspective. Policyholders who take steps to fortify their property (e.g., using fire-resistive materials, reinforcing roofs) could enjoy premium discounts.


The COVID-19 pandemic continues to be a top-of-mind concern for organizations and individuals across the globe. While many essential businesses (e.g., hospitals, pharmacies, grocery stores, gas stations) remained open, other operations deemed nonessential shut down temporarily or changed the nature of their operations. Some even ceased operations permanently.

While the full cost of COVID-19 has yet to be determined, one thing is certain – COVID-19 has significantly tested the preparedness of businesses everywhere. Moving forward, it’s critical to take a hard look at your continuity and disaster response plans. You should also partner with experts who not only understand the risks your business faces on a daily basis but can also help you prepare for the unexpected. This is particularly important during times of hardship and uncertainty.

To learn more, contact your local risk and insurance professional or a member of our team


Business Insurance Risks & Trends in 2020~/Portals/0/PackFlashItemImages/WebReady/business insurance risk.jpg insurance risk.jpgThe pandemic, extreme weather and social inflation are impacting business insurance in 2020. See how these business insurance risks and trends might shape the marketplace....2020-05-27T13:23:34-05:00

Insurance experts often examine how outside influences and trends affect the insurance marketplace. Businesses should follow suit to determine what factors impact their insurance coverage. For 2020, there are a number of sweeping market developments to consider.

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