Policy Studies Insurance

The Scourge of Social Inflation


Jerry Theodorou
Policy Director, Finance, Insurance and Trade

Press Release

Media Contact

For general media inquiries and to book our experts, please contact [email protected].

Executive Summary

Social inflation is among the most talked-about phenomena in property and casualty insurance and civil justice circles. There is hardly an insurer earnings call or industry conference where social inflation is not addressed. In this paper we analyze social inflation by exploring the following four questions:

  1. What is social inflation?
  2. Is social inflation real?
  3. What drives social inflation?
  4. What can be done about social inflation?

Social inflation refers to factors unrelated to general inflation in the economy that underlie rising court awards. Although there are some who deny the existence of social inflation, the preponderance of evidence shows that social inflation and its effects are real.

Although there are multiple drivers of social inflation, chief among them is the behavior of the plaintiff bar. In recent years personal injury lawyers have effectively deployed new strategies to secure large court awards, whether through jury verdicts or out-of-court settlements. The defense bar has been slower and less successful to push back against large “nuclear verdicts” that are out of proportion to damages. This has resulted in historically large losses across various liability lines of primary insurance and reinsurance.

Other drivers of social inflation include attorney advertising, litigation funding, phantom damages and a defense bar on the back foot in a world of torts with swelling court awards.

Insurers would do well to understand the drivers and potential impact of social inflation on future financial results. Just as the plaintiff bar has deployed creative new courtroom strategies to push awards ever higher, the defense bar should respond with strategies of its own to arrest the continued inflation of awards. Failure to do so will result in impaired insurer balance sheets and higher insurance premiums for all, amounting to a “hidden tax” burdening individuals and making businesses less competitive. Just as there are multiple drivers of social inflation, there must be a multi-pronged response, incorporating public policy action as well as defense bar retooling.

Featured Publications