This article is part of a series sponsored by IAT Insurance Group.
Social inflation is not a new phenomenon, but its impact is becoming increasingly obvious in the entire insurance industry. In Episode 11 What is brewingChris Accetta, vice president of product management at IAT Insurance Group, and David Geller, senior product manager, discussed pressing questions about social transportation inflation and what it means for the industry in 2025.
Listen to the plot here.
1. What is social inflation?
Social inflation refers to the increase in the cost of insurance claims exceeding the standard economic inflation. Over the past decade, the cost of claims has increased due to various legal and social changes, which has led to an increasing focus on insurers. The rollback of infringement reforms, growing jury sympathy and growing attitudes toward the company have contributed to this trend. As David explains, the rise of “reptile theory”—a legal strategy to attract juror emotions—provides a roadmap for plaintiffs to spend more and more.
2. What are the main factors driving social inflation?
Several interconnected factors can drive social inflation:
- Change the attitude of the jury: Increased anti-company sentiment, especially among young jurors, may lead to higher verdicts.
- Certified judgment: The problem is exacerbated by the massive surprise verdicts of tens of thousands or hundreds of millions of dollars becoming more common.
- Third-party litigation funds (TPLF): Hedge funds and private investors fund litigation, extending litigation and increasing the risk of nuclear rulings. TPLF is reportedly a $17 billion industry that is linked to a surge in litigation that has the potential to reach a class action situation.
- Social Media Impact: The rapid spread of emotional narratives can influence public perception and influence experimental results.
3. Which industries have been most affected?
Certain industries and their insurance companies are disproportionately affected by social inflation, including:
- Truck Transport: High accident frequency and public perceptions of negligence in freight companies have led to higher claims costs.
- Product Liability: Consumer products and medical devices are the primary targets of class action lawsuits, which make these industries attractive to TPLF companies and can promote targeted advertising to expand the plaintiff pool.
- Intellectual Property and Trade Secrets: Litigation is increasingly used as a tool to reveal defendants’ proprietary information, making companies in industries with highly vulnerable IPs particularly vulnerable.
4. How does the insurance industry respond?
The industry is taking several approaches to address social inflation:
- Transfer to non-attractive markets: The need for greater pricing and coverage flexibility has led to the migration of casualty policies to the non-standard insurance market.
- Stronger underwriting practices: Insurance companies are reviewing policy language, ensuring password terms and conditions, and assessing potential litigation risks more carefully.
- Legislative work: Some states have enacted or introduced laws to increase transparency in litigation financing. As of publication, six states have enacted laws, and another 14 are considering similar regulations.
- Pricing adjustments: Insurers may need to reevaluate their general liability pricing to better align with rising claims fees and ensure long-term sustainability.
The final thought
Social inflation has brought complex and evolving challenges to the insurance industry. Just like Chris and David’s highlights, insurance companies must remain proactive – on legislative development, refining underwriting practices and adapting to changing social attitudes. The coming years are crucial to identifying that the industry can effectively address these challenges while maintaining the stability of policyholders and businesses.
Please stay tuned for more insights What is brewing As we continue to explore key trends in shaping the insurance landscape.
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