After retreating at the start of the pandemic, the spectre of social inflation has returned to haunt the insurance industry.
The term, coined by Warren Buffett in a 1977 shareholders’ letter, refers to insurance loss-cost inflation unrelated to economic trends, primarily from rocketing jury awards in US liability cases.
What we are talking about is a business issue, not just an insurance issue and at the end of the day the cost gets sent out to consumers.

A bold and collaborative plaintiffs’ bar, litigation financing growth, increased societal mistrust of big corporations and younger jurors have combined to make this one of the most worrying — and hard-to-quantify — insurance risks. By contrast, defence attorneys who are both risk averse and keen to guard proprietary techniques, coupled with insurers bent on minimising legal costs, have put carriers on the backfoot, notes R Street Institute director Jerry Theodorou.
“Insurance is very siloed,” he says. “Claims managers are managing claims — they don’t have the time to be strategic and become evangelists — and defence firms are competing with each other. Changing the structure of the industry is not done easily.”
The Casualty Actuarial Society and the Insurance Information Institute in February estimated that social inflation increased claims in commercial auto liability alone by more than $20 billion between 2010 and 2019, equivalent to about 14% of claims paid out. More recent legal data, coupled with insurer commentary, point to a marked comeback in mega juror awards after a Covid-19 reprieve.
Thomson Reuters Westlaw/Swiss Re Institute figures show the proportion of US general liability verdicts over $5 million rose by 52% between 2014 and 2021 to more than 12% of all GL verdicts last year, despite a dip in 2020 because of lockdowns. Their data also shows a steep rise in the median size of top 100 verdicts in the five years to 2019.
Similarly, AGCS’ Larry Crotser, North America head of key case management, cites a more-than quadrupling of the size of average verdict values greater than $1mn between 2010 and 2018, from $5 million to $22 million.
“If the plaintiffs’ bar think they have a blockbuster case they are not going to want to settle. Over the past 18 months the cases that get tried before a jury have tended to be the most serious,” he says.
Social inflation is primarily a casualty issue, directors’ and officers’, errors and omissions, product and general liability all affected, alongside commercial auto. However, specialty insurance with a liability component has also been hit.
Claims managers are managing claims — they don’t have the time to be strategic and become evangelists — and defence firms are competing with each other. Changing the structure of the industry is not done easily.

Swiss Re’s Martin Boerlin, head of casualty R&D Americas, noted in a May webinar that within aviation the value of a single passenger life has increased three-fold in recent years. Of recent $10 million-plus US “nuclear” verdicts a $353 million compensation award to an airport worker struck by a van in Texas was an aviation loss; whereas a $200 million award resulting from a fatal gas explosion at a Texas port was marine. Boerlin also named cyber as a peril which could generate “nuclear” compensation awards.
Some consider mounting homeowners’ claims in Florida linked to assignment-of-benefits abuse to fall into the social inflation bucket. RenaissanceRe CEO Kevin O’Donnell recently cited social inflation as a key reason for the carrier’s pullback from the state’s property market.
In recent months the most eye-catching juror award was a record $301 billion — yes, that’s a “b” — against a Texas sports bar to the family of a grandmother and her granddaughter killed by a drunk driver. The family’s legal representative stressed they don’t anticipate receiving any payment and it is important to note that these mammoth juror awards get whittled down. However, they remain the drivers of what is still vastly outsized compensation.
Preparing for pain ahead, Munich Re recently strengthened reserves for US casualty liability. In May CNA Financial CEO Dino Robusto cited social inflation as a key risk, noting on a conference call that the pressure was “merely obfuscated by the pandemic, rather than extinguished”.
Insurers Fight Back
It may have taken a while but insurers are responding, and not merely by changing limits and attachment points.
Last November Zurich created what it believes is is a unique role within the industry, naming long-standing claims specialist Allen Kirsh as head of claims judicial and legislative affairs, with a remit to address social inflation and tort reform.
Kirsh says he’s building a coalition across the industry, including claims professionals, underwriters, brokers and the defence bar.
“All the companies have been doing their own thing and fighting this in their own way.”
His aim? “To get together, build leverage and move the needle more quickly than it has moved in the past.”
Actions to date at Zurich include extensive work with defence attorneys, including a recent summit. It is also working to educate judges, jurors and legislatures about plaintiffs’ bar tactics that are “not proper in the law”.
“We’re putting guard rails on the plaintiffs’ arguments and statements so the juries hear what they are supposed to hear according to the applicable law,” he says.
AGCS is similarly working with the defence side and Crotser notes company — and industry —successes in opening judges’ eyes to litigation financing and challenging the plaintiffs’ bar’s “playbooks”.
“It’s been a slow start but we are making some real headway here in the US,” he says.
I would consider [Climate Change] to be a very high risk. It comes back to a perceived societal longing to find a culprit in complex matters.

Industry stakeholders aren’t counting on tort reform. Chubb said as much in its 2022 liability limit benchmark and large loss profile report. Neither is AGCS’ Crotser optimistic, while Acrisure vice president of risk management Mike Gorlin cites unhelpful rollbacks to earlier reforms across several stakes.
However, Zurich, with the American Property and Casualty Insurance Association and the Institute for Legal Reform, continues to lobby jurisdictions where the playing field is skewed towards the plaintiff, including California, Florida, Illinois, Texas, New York and Pennsylvania.
“What we are talking about is a business issue, not just an insurance issue and at the end of the day the cost gets sent out to consumers,” says Kirsh.
Florida property insurance reforms signed in by Governor Ron DeSantis in May are one example of this type of advocacy working, he notes.
Whether such efforts will be enough to stem the tide — R Street’s Theodorou considers industry initiatives to be “drops” compared with the “rainfall” of plaintiff collaborative actions — what is clear is litigation threats, and with them social inflation drivers, are mounting. US trends are also spreading overseas.
Beyond the US
In the May webinar, Swiss Re discussed whether social inflation in Europe was “ hype or a serious issue”, and concluded the latter. The (re)insurer noted that law firm CMS had found that collective actions in Europe had more than doubled to 109 in the two years to 2020, even before an EU directive ushered in a new era for class actions. The CMS data also showed a sharp rise in “opt-out” claims in the UK — where there are long-established mechanisms for group redress - and also in the Netherlands.
In December 2020, the EU became significantly more plaintiff friendly with the European Representative Actions Directive, which member states must implement by July 2023.
Despite certain safeguards to prevent US excesses, including that only consumer organisations can bring cases, provisions to discourage punitive damages, and the inclusion of the “loser pays” principle, it represents a major shift in the legal landscape.
The growth of litigation financing in Europe is another force changing the dynamics, notes Clyde & Co. partner Henning Schaloske.
Swiss Re estimates global litigation funding market to have been worth $17bn in 2020 and to be growing at 9% a year. It is one of a number of carriers calling for proper regulation, given the funders’ capacity to initiate and prolong dubious legal actions and muddy the lawyer-client relationship.
Within Europe, funders have targeted the UK, the Netherlands, German-speaking countries and the Nordic region, though AGCS recently reported notable growth as far afield as Saudi Arabia and South Africa.
In Europe, competition law and the EU’s strict GDPR data rules are already facilitating class actions. Swiss Re’s Boerlin considers cyber-related actions to be more of a threat in Europe than the US.
Environmental social & governance (ESG) issues, particularly around climate change, are seen as additional major drivers of European collective claims, and potentially social inflation. New and pending regulations, including the Corporate Sustainability Reporting Directive, are making it is easier to hold companies and their directors to account.
Fossil-fuel companies — and their insurers — are already in the line of fire but this July Dutch airline KLM became the first airline to be the target of a climate-related lawsuit over “greenwashing”.
AGCS’ Joerg Ahrens, who is global head of key case management long tail and head of the cyber global practice group, says of the climate change/ESG arena:
“I would consider this to be a very high risk. It comes back to a perceived societal longing to find a culprit in complex matters.”
“This is where social inflation will come to its head — I am fairly certain.”