At a time of economic volatility, there’s a pressing concern that affects carriers of all sizes and within all markets: social inflation. This phenomenon is causing insurance losses to skyrocket, driven by higher jury awards, evolving concepts of tort and negligence, a devaluation of money, and a more liberal treatment of claims by workers’ compensation boards. While social inflation has yet to be contained, there are some strategies for navigating the road ahead.
We understand that social inflation is a complex issue with profound implications for the insurance world, influenced by several factors, including:
- Higher Jury Awards: Jurors are increasingly awarding larger sums, even for relatively minor injuries or damages. This trend significantly impacts carrier claim payouts.
- Devaluation of Money: The perceived value of money has changed over time. What was considered a substantial sum a decade ago may not hold the same weight today. This shift has an undeniable influence on jury decisions and, consequently, insurance claims.
- Liberal Treatment of Claims: Workers’ compensation boards are becoming more lenient as mistrust in, and demonization of, corporations increases—leading to more substantial awards for injured workers. This, in turn, contributes to the overall rise in insurance losses.
The ramifications of social inflation are significant and far-reaching. For carriers, this translates into increased claims costs, a greater likelihood of catastrophic claims, and a growing challenge in predicting and underwriting risks accurately. Additionally, the rise in jury awards can put pressure on policy limits, leading to higher insurance costs and a negative impact on stock prices for major public carriers.
So, how can you be proactive in your social inflation prevention and protection? Gallagher Bassett is at the forefront of addressing the challenges posed by social inflation, and we recommend six core strategies when helping carriers succeed in this arena.
- Review Your Coverage: Stay Proactive
With the ever-increasing trend of excessive jury verdicts, even seemingly minor claims can result in extraordinary payouts. Social inflation is changing the game, and carriers need to be prepared. Review your coverage and assess whether your current liability limits are sufficient to cover potential socially inflated claims. It is no longer a matter of “if” but “when” your company might be exposed to such claims. Consider not only primary liability coverage but also non-economic and punitive damage awards. Keep an eye on emerging trends and adapt your coverage to mitigate the risks of increasingly high awards.
- Mitigate Uncertainty: Settle Early
Early settlements are a powerful tool in the battle against social inflation. Whenever feasible, we encourage carriers to aim for early settlements to avoid the uncertainty of jury verdicts. A claims management partner like Gallagher Bassett is equipped to facilitate these early settlements, helping carriers resolve claims before they escalate into costly legal battles. By leveraging our expertise, carriers can efficiently navigate the challenges of social inflation and save both time and resources.
- Settle for Better Conditions: Avoid a Public Spectacle
A court case that results in a high award carries greater risks than just the financial outlay—namely, ongoing brand and reputational damage. Counter this by considering mediation and settlement options that allow for confidentiality clauses and restrictions on public disclosure. This approach can help mitigate negative media attention, ongoing dramatization, and reputational damage. Collaborate with your legal team to ensure that matters are resolved out of the public eye when needed, protecting your company’s brand.
- Examine the Jury: Gather Crucial Information
When facing trial, it is essential to examine potential jurors meticulously. Probe their media consumption habits, preferred news outlets, online activity, and social media usage to determine any ingrained biases that may be at play. By understanding the sources of information that may have influenced jurors’ opinions, you can tailor your strategies effectively. Your legal team should be well-prepared to use this information to build a stronger defense and combat the influence of social inflation during the trial. Consider employing strategies such as carefully crafted voir dire, limiting instructions, appeals, and motion practice. In addition, while anchoring is a tactic that can be employed by either side in a lawsuit, it is woefully underutilized by the defense. Defensive anchoring can provide jurors with a specific reference point, or “anchor,” when evaluating damages in a lawsuit.
- Enhance Your Corporate Reputation: Embrace Corporate Social Responsibility
Corporate social responsibility (CSR) is more than just a business approach. While a commitment to operating your business in socially responsible ways is always important, it can be a powerful tool in combating social inflation. Strengthen your reputation by engaging in CSR initiatives that resonate with inflyour brand and your mission. This enhances your public perception and helps neutralize juror bias and other factors that drive up verdicts. In times of extreme events or public reactions, having a robust CSR strategy in place can make a significant difference in how your company is perceived and, in turn, how jurors may view your actions.
- Embrace Advanced Data Analytics: Early Detection and Strategic Insights
Leverage advanced data analytics as a vital tool to combat social inflation. Early detection is crucial, and analytics can help you identify emerging trends and patterns in claims to inform your risk profile. Early detection empowers you to make well-informed decisions and proactively manage potential challenges. Additionally, advanced data analytics can provide strategic insights for informed planning, allowing you to adjust your strategies to mitigate the impact of social inflation and maintain financial stability. Consider establishing a strategic claims management partnership with an entity that provides access to specialized tools—like our award-winning RMIS suite, Luminos, which enhances your data analytics capabilities for early detection and data-driven decision-making.
By understanding the dynamics, staying informed, and collaborating with industry experts like Gallagher Bassett, you can proactively manage and mitigate the impact of social inflation, ensuring the long-term stability and profitability of your insurance operations.
Gallagher Bassett specializes in navigating the complex landscape of social inflation and has an extensive track record of helping clients effectively manage their claims. To learn how our expert guidance on early settlements, legal expertise, and comprehensive data analytics can help you mitigate the impact of social inflation, reach out to John Stambaugh, Caryn Siebert, or Rob Blasio, Managing Director — GB Specialty, here.
