Social inflation: An American phenomenon with international implications

By Brian Murphy, Senior Vice President, Berkley Offshore Underwriting Managers, and IUMI Legal & Liability Vice Chair

Part Three – What can be done to lessen the effects of social inflation?

The first article in this series broadly defined social inflation as the trend of rising insurance costs due to increased litigation, plaintiff-friendly rulings and higher jury awards, often driven more by emotion than by facts, logic, and sound judgment.  The second instalment discussed the financial impact on the insurance industry. In this third and final instalment, we’ll talk about what can be done to mitigate the impact of social inflation.

While there is no simple, clear-cut path to reducing the effects of social inflation, there are some things that companies (individually) and the industry (as a whole) can do to potentially decrease its impact.  At a company level, ensuring that the proper defence attorneys are utilised is critical. Plaintiffs’ attorneys have very systematic, but widely known and often predictable tactics for garnering sympathy and anger with jurors which are frequently manifested in an excessive verdict. These tactics can often be offset by an effective defence strategy, but not all defence attorneys are versed in these strategies. For potential high-value cases, insurers may need to look beyond their approved panel to attorneys that have specific experience in defending these types of cases, keeping in mind that their fees may be higher.

As an industry, insurance companies and the trade associations that frequently represent them can actively support tort reform at both the state and federal levels. Much of the tort reform legislation that was enacted in the 1980s, such as statutory limits on non-economic damages, has been rolled back. By raising awareness of the detrimental impacts of social inflation on society as a whole, the industry can increase the chances of tort reform legislation being proposed and adopted.