According to a new report from the Insurance Information Institute (Triple-I), social inflation increased more than $20 billion between 2010 and 2019 in commercial auto insurance claims in the United States alone.
The report, which was in partnership with the Casualty Actuarial Society (CAS), showed that social inflation and the development of losses confirm and quantify as one of the main factors driving up the cost of commercial motor insurance.
A separate report by the Insurance Research Council (IRC) explained that losses in several lines of insurance have accelerated in recent years much faster than economic inflation alone can explain.
While the report focused on commercial auto insurance, it also identified evidence of similar trends in other industries, such as “other liability cases” and medical malpractice claims.
Seen as a rising cost of doing business in the insurance industry, social inflation is influenced by negative public sentiment towards big business, litigation funding and policy reform rollbacks. tort liability at the state legislative level, all of which have increased liability costs.
The report also found that changing public perceptions and attitudes are likely to cause jurors to sympathize with plaintiffs when awarding damages.
Jurors may also believe that the business, or insurance company, has unlimited financial resources, leading to what are commonly referred to as “shock” verdicts.
These monetary damages are much higher than expected based on the evidence presented at trial, often exceeding $10 million.
Emotional appeals to juries from plaintiff’s attorneys are nothing new. Neither do class actions. But the plaintiff bar has moved to a new level with tactics such as third-party litigation funding and litigation loans, the report notes.
According to Swiss Re, the financing of lawsuits by international hedge funds and other third-party financiers, with no interest in the outcome other than a share of the settlement, has become a $17 billion global industry.
Law firm Brown Rudnick sees the industry as even bigger, estimating it as a $39 billion global industry in 2019, according to Bloomberg.
Some states have rules in place requiring disclosure of third-party litigation funding in lawsuits, which would give defense attorneys and juries insight into which entities other than the plaintiff are funding plaintiff attorneys’ legal fees. .
However, this was met with resistance from third-party funders. In 2020, the world’s 13 largest commercial litigation funders formed the International Legal Finance Association (ILFA) to advocate for litigation funding and oppose general disclosure requirements.
Commercial transportation is one of the hardest hit industries with more frequent lawsuits resulting in higher insurance payouts.
A 2020 study by the American Transportation Research Institute found that, from 2010 to 2018, the size of jury verdicts increased by 33% per year, with overall inflation increasing by 1.7% and the costs of 2.9% health care.