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Social Inflation and the Price of Insurance

By February 21, 2023Insurance

If you are unfamiliar with the term SOCIAL INFATION, it is an industry term that is used to explain the correlation between insurers claims costs and the general economic inflation of the economy. It is usually used to describe the excess amounts that are paid out in claims due to societal indifferences on who absorbs the cost of the claim. SOCIAL INFLATION is one of the leading causes of excessive verdicts across the country, which in turn leads to increased premiums for consumers. From 2015 – 2020, the cost of a jury award over $10 million, increased by 35%, from $20 million to $27 million. From attorney tactics to corporate accountability, there are four major trends that are impacting bodily injury cases in the foreseeable future.

1. Desensitization to large verdicts and Media Impact – In the early 2000’s, this type of behavior was often associated with kids and teens who were thought to have played too may video games. However, it is now being associated with large settlements and excessive verdicts and the fact that the amounts no longer shock the public. In other words, the public has become “numb to the numbers”. This ongoing desensitization of the value of money helps drive up jury awards in future cases.
2. Negative Public Sentiment and Corporate Accountability – In a GALLUP Poll done in 2017 – 2018, 67% of jurors polled, believed that companies knowingly sacrifice safety to make more profit. At the same time, most jurors (89%) believe companies should always have to do more than just meet government safety standards. Furthermore, 88% of jurors think that companies should take all precautions, no matter how impractical or costly, to ensure the safety of their products. In fact, 58% say that a company bears some responsibility even when a customer is injured while misusing a product.
3. Erosion of Tort Reform – Changes in the legal environment, which historically limited the amount plaintiffs could obtain in damages, now tip the scales in favor of plaintiffs. For example, the elimination of monetary caps in some states has led to increased judgments.6 Also, modifications increasing the length of time during which a case can be filed expands attorneys’ opportunity to launch more cases.
4. Attorney Tactics and Litigation FundingCommon strategies include advanced marketing and savvy emotional messaging:
  • Advertising — Attorneys are spending about $1 billion for 15 million advertisements per year in both digital and offline channels.8 In addition to bringing in more plaintiffs, these ads also have the potential to influence jury pools.
  • “Venue shopping” — Using analytics to determine the locations and judges with a track record favoring more generous awards.
  • Emotional appeals — Attorneys have moved beyond appeals for sympathy to stoking anger at corporate defendants by appealing to the part of the brain that prioritizes safety and survival.
  • Repositioning medical results — Emphasizing results such as diagnostic imaging to focus on the worst-case scenario, often with the intent to demonstrate a need for additional procedures or even lifelong care.

Fueling even more of this activity is the growing litigation funding investment market, in which a third-party invests in specific cases, even plaintiff attorneys find too tenuous to take on, for a contingency fee. In return, the investors receive a cut of any award. This industry was valued at around $12.2 billion in 2021 and is projected to reach $25.8 billion by 2030.