- Swiss Re’s Social Inflation Index attributes the rise to large court verdicts, increased litigation funding, and legislative trends.
- The phenomenon is causing underwriting losses and reduced insurance capacity globally. Reforms in tort law and better risk management are suggested to address this issue.
September 07 2024 12:22:01 UTC– Litigation costs are driving a 57% increase in US liability claims over the past decade, with social inflation being the main factor behind the rise.
This trend is also affecting other countries and requires joint efforts from the legal system and insurers to address. The Swiss Re Institute developed a Social Inflation Index to measure this phenomenon accurately.
Social inflation
Social inflation, a trend where liability claims outpace economic indicators like wages or core inflation, has been observed since the 1980s but has intensified recently, especially in the U.S. The rise is linked to several factors, including a heightened tendency to settle compensation claims in court and third-party litigation funding (TPLF), which allows litigants to access trial funds from investors. In 2023, 27 court cases resulted in awards exceeding $100 million each.
Risky environment for businesses
This surge in claims has created a more expensive and risky environment for businesses, with U.S. commercial casualty insurance losses growing at an average annual rate of 11%, reaching $143 billion in 2023—surpassing global insured losses from natural catastrophes.