The Top Social Inflation Drivers

Has your broker mentioned “social inflation” to explain factors for premium increases? This refers to the impact of societal factors on insurance claims. Circumstances such as increased litigation, extensive interpretations of insurance policies, plaintiff-friendly judgments and inflated jury awards have surged social inflation for property and casualty.

Insight into social inflation drivers can offer you a better appreciation of matters that affect your insurance premiums and opportunities to proactively protect your business.

Heightened Litigation Concerns

Litigation funding occurs when a third party offers financial resources to finance a lawsuit. The third-party receives a portion of any settlement in exchange for monetary support. Previously, exorbitant attorney fees would often intimidate plaintiffs against pursuing a trial. Third-party funding has drastically changed the game as the volume of cases pursued has increased without a financial barrier. The surge in litigation funding has also raised litigation costs to nearly seven figures as plaintiffs can afford to expand cases and pursue larger settlements.

Shifts in Tort Reform

Tort reforms are laws intended to lessen litigation. Specifically, they’re designed to thwart trivial lawsuits and preserve laws that hamper abusive practices against businesses. Several state legislatures continually enact tort reforms to influence fewer claims and cap punitive damages. However, recently, states have modified tort reforms or challenged their constitutionality. Opponents suggest tort reforms have modified settlements and influenced attorneys to decline cases and ultimately assist victims to get justice.

A further complication, as it is largely related to political leanings and state interest, tort reform is ambiguous. Should tort reform continue to be contested, it will lower restrictions on damage awards, statutes of limitations and contingency fees. These all can significantly drive up the cost of claims and exacerbate social inflation.

Plaintiff-Friendly Legal Decisions & Large Jury Rewards

Anti-corporate culture is more prevalent than ever. Highly publicized concerns related to the mismanagement of personal data and social campaigns (e.g., Occupy Wall Street) are largely responsible for this distrust.

The negative identity impacts juries as organizations are held to a high standard for their business operations. Increasingly, juries sympathize with plaintiffs. In response, attorneys are playing on the jury’s empathy and emotions.

In addition, public perception continues to view businesses can afford to compensate for any damages. Juries have fewer reservations about fully prosecuting companies. Given that nuclear verdicts (e.g., multimillion-dollar settlements) have become the new norm, juries are clearly desensitized to plaintiff awards.

How You Can Respond to Social Inflation

The threat of litigation is not fully unavoidable, but there are risk mitigation measures to ensure your business is prepared for a lawsuit. It is critical to prevent these exposures as social inflation continues to drive up the cost of claims. Consider these three strategies:

1. Purchase an Umbrella Policy

Commercial umbrella insurance offers financial protection above other liability policies. It enhances existing liability coverages and helps to protect against policy gaps and substantial claims. Umbrella coverage offers additional protection for a variety of concerns, such as:

• Libel
• Vehicular accidents
• Third-party property damage
• Product liabilities
• Customer & employee injuries

2. Protect Against Employment Practices Liability (EPL) Claims

Given social inflation trends, the high frequency of EPL claims can be particularly devastating. Protect your business by regularly reviewing your employee handbook and ensuring sexual harassment, workplace violence and similar policy issues are communicated effectively. These areas will support your defense against claims. Additional protection can be secured through a standalone employment practices liability insurance policy.

3. Work With a Trusted Broker

The insurance market is constantly progressing, and in the face of social inflation, a competent insurance professional can provide money-saving advisement and risk-prevention tactics for your business. Partner with a broker who has strong carrier relationships and in-depth knowledge of your industry.

We’re Here to Help Understand Your Unique Exposures

Social inflation can introduce a level of uncertainty when it comes to your risk management and claims prevention practices. As the insurance market continues to harden, having a trusted broker in your corner can save you time and money. To ensure your business is ready for any issue that may arise, connect with a member of our team.