I do my best work when I can work with what I call “young guns” – those in the 18 to 30 year old generation. They are funny, bright and brilliant. Their views are not always mine but it is so enjoyable to listen to how they think, reason and arrive at conclusions. I had a group of these young professionals at our dinner table a couple of weeks ago and I asked them to tell me what the term “social inflation” meant to them. The responses from some were humorous while others were profound. The former group talked about how the term meant being invited to more dinner parties or attending more outdoor concerts. The latter group talked about increasing society’s interest in fixing the problems they will face in the future. As I listened, I formulated how I would talk about what it means in the insurance industry.
I first explained that insurance professionals define social inflation as the drive of humanity to correct societal wrongs primarily through litigation and specifically when litigation results in high-dollar verdicts. A recent PropertyCasualty360 article cited AmTrust Financial’s data showing that the number of verdicts resulting in judgments of $20 million or higher rose 300% between 2010 and 2019. Then I showed them a blog from the Travelers Insurance Company which lists four contributing factors to rising social inflation: growing public mistrust of corporations; increasingly sophisticated plaintiff’s attorneys; emotional juries that are swayed by arguments that trigger their drive to protect loved ones; and changes in the legal environment that have produced a more liberal and less tenured bench at the state court level.
As we batted around all four of these concepts, I just listened to the commentary with some believing social inflation occurs because of “greedy” insurance companies and corporate injustice, while others believe it’s driven by “greedy” plaintiff lawyers who make it a “spectator sport” to file hundreds of lawsuits and then litigate from the stands, hoping for a big attorney fee award. If social inflation is the result of the former, then it doesn’t appear the trend will subside as this younger generation rises in leadership and power, politically and professionally. If the phenomenon is caused by the latter, then we may see this generation doing all they can to temper plaintiff lawyer enthusiasm in an attempt to protect the very defendants that are the subject of the suits.
One thing is clear: insurance premiums are rising, liability coverage availability and other lines of business are shrinking their footprint, and public officials are getting the constituent calls because their annual premium renewal arrived in their mailboxes and they have no idea how they will pay it. Passions are running high these days, and the more costly a lawsuit’s outcome, the more these nuclear verdicts will ripple through, finding their way into the cost of insurance. We’ll continue to follow this trend and provide updates to you, our readers.
LMA Newsletter of 10-18-21
