Social inflation's effect on excess

Texas jury awards $301bn settlement in suit against bar. Jury awards $30mn in suit against California nursing home. These are headlines driven by the continued social inflation trend.

While the pandemic paused costly jury awards for a while, social inflation's courtroom impact has picked up right where it left off.

Distrust of "big business", litigation funding and lawyer-driven class action lawsuits are among the factors contributing to the trend.

Exceeding limits

Not surprisingly, the hard-to-place risks of the E&S market are significantly impacted by social inflation and the corresponding nuclear verdicts. Moreover, given the size of these awards, primary coverage limits can be quickly exhausted, requiring businesses to turn to excess coverage for much-needed protection.

In the past, similar litigation would be well within primary limits. Under today's litigious circumstances, managing attachment points and capacity is critical. Excess E&S markets are distributing capacity carefully and limiting the risks they choose to write.

This can have a big impact on coverage availability for industries at a higher risk for lawsuits. Consider product liability. Data from the Insurance Information Institute shows product liability losses relating to personal injury awards continue to increase. In 2020, the average jury verdict award totalled $7.1mn.

Tighter relationships

Now more than ever, it's essential for businesses to have an open dialogue with their insurance carriers to understand the current litigation environment and how to minimise associated risks.

Insurers' claims teams have handled social inflation-related issues for the last several years and may provide helpful suggestions on how to avoid the adverse effects of the trend.

In addition, insurers like Axa XL are working with new technologies that can potentially help. For example, for auto liability, telematics not only assists clients in improving safety and avoiding collisions but can also help insurers defend claims.

Fortunately, the E&S market is well-versed in helping businesses address the most challenging risks. Unfortunately, for now, social inflation continues to be one of them.