The Insurer:

Two reports released this week suggest a groundswell could be starting to form in opposition to the drivers of social inflation, with R Street urging more aggressive action from insurers on the issue and Swiss Re taking aim at third-party litigation funding (TPLF) – and not before time.

That report followed the release earlier in the week of a study by think tank R Street that concluded unchecked social inflation could become a “self-perpetuating phenomenon that sends improper signals regarding the value of damages to jurors, judges and defendants”.

The R Street study – authored by former Conning and AIG executive Jerry Theodorou – underlined that social inflation is a very real phenomenon.

It pointed to drivers including structure and strategy changes in the plaintiff bar, attorney advertising, litigation funding, phantom billing, and the weaknesses of the defense bar.

The think tank noted that some of the impacts of social inflation include higher insurance premiums, financial strain on insurers, depletion of municipal resources and disincentives for businesses to take risks, all while benefiting “no one except plaintiff attorneys and their clients who engage in practices that lead to social inflation”.

R Street suggested that there are two broad responses that need to be pursued to combat the perpetuation of social inflationary pressures.

The first is to influence the development of public policy at the state and federal levels to reveal and control excesses. The second is for “insurers and defence counsel to adopt and deploy more aggressive strategies that push back and formally object to tactics violating existing norms of courtroom behaviour”.

The study also identified three specific courses of action: pursuing public policy education and advocacy in state capitols; creating broad-based coalitions; and defence attorneys aggressively pushing back against the use of anchoring and emotional appeals.

The suggestions are welcome, and should serve as a starting point for others in the insurance industry to take a stand. As the R Street study suggests, the industry should be more aggressive.