Social Inflation by the Numbers

Eye-popping verdicts, high settlements, and litigation funding are driving up the cost of casualty insurance claims. In this session at RIMS 2024, Kimberly Reilly, Principal Account Executive at Zywave, introduced proprietary loss data sets that reveal key insights into these trends.

Social inflation encasulates how insurers’ claims costs can rise above economic inflation based on societal preferences. This includes pain and suffering, loss of life, loss of consortium, and punitive damages.

Factors contributing to social inflation include:

• Society’s evolving sense of what $1 million represents.
• Desensitization to large verdicts and media impact.
• Negative public sentiment regarding corporations.
• Attorney tactics like Reptile Theory and litigation funding.

Zywave studied the economic loss to businesses (which does not include claims data). This study analyzed 237,000 records from 2001 to 2023. Results showed that:

• The median value of a single injury equaled $2.5 million, which jumped up to almost $8 million for the 75th percentile value, and $21 million in the 90th percentile.
• For the median, $2 million awards in 2001 increased to over $2.5 million in 2023.
• For the 70th percentile, $3 million awards in 2001 increased to over $8 million in 2023.
• For the 90th percentile, $5 million awards in 2001 increased to over $20 million in 2023.

It is important for the risk management community to be acutely aware of social inflation trends because pricing has to be set today, but larger losses take years to settle. The evolution of this loss trend could have a significant impact on future loss costs and limits could become inadequate.