The second answer requires a look at the legal system and related third parties, which are deploying proactive and sophisticated tactics to monetize the trend for higher payouts.ДЇor example, lawyers are investing in powerful data, analytics, and technology to identify and exploit liability opportunities. This is especially visible among members of the millennial generation who now occupy positions of influence and sit on juries. This has contributed to a tendency among juries and judges to sympathize with plaintiffs. The first answer is rooted in societal shifts that stem back to the 2008 financial crisis, which left a deeply felt sense of anger and distrust toward large businesses. There are two answers to the question of why social inflation is on the rise today. If social inflation persists, it can ultimately impact capacity and even availability across whole lines of business. If unaccounted for, social inflation pushes up the cost of claims to such an extent that pricing does not accurately reflect risk, which puts pressure on insurersвЂ™ profitability. The number of verdicts of $20M+ in 2019 was 300% more than the annual average between 20. And the level of compensation awarded has also increased, especially in large cases. Now itвЂ™s back, with the US litigation rate rising for the seventh consecutive year in 2019 to 8.9% compared with an average of 3% for the previous two decades. ItвЂ™s not a new phenomenon вЂ“ the US has seen waves of social inflation in the 1980s and 1990s. More specifically, itвЂ™s caused by shifts in societal views about increased litigation, broader contract interpretations, plaintiff-friendly legal decisions, and larger jury awards. The result? The insurance industry is losing a battle it didnвЂ™t even realize it was in.Д«ut first, letвЂ™s take a quick look at what social inflation is and why itвЂ™s a growing problem today.ДЄt its core, social inflation is an industry-wide rise in insurersвЂ™ claims costs over and above economic inflation.

Insurers know itвЂ™s there вЂ“ they can see it in their results вЂ“ but as an industry we struggle to define it, measure it, and come up with a credible response.ДЄnd this matters because the legal system is doing quite the opposite: committing significant resources (including investment in data analytics) to understanding and exploiting this very issue. The phenomenon is responsible for driving up the cost of claims across a range of lines, ultimately affecting insurersвЂ™ profitability.Д«ut for all the talk, very little is being done about it. вЂњSocial inflationвЂќ has become somewhat of a buzzword on insurersвЂ™ earnings calls in recent years вЂ“ especially over the past 18 months.

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