Adjusting For Social Inflation In Litigation

 Wednesday, December 30, 2020

 The CLM

Social inflation refers to social and political factors impacting access to insurance and insurance premiums, and lawsuit outcomes. Social inflation can cause an upward tick in the number of lawsuits filed and drive nuclear verdicts, which, in turn, can lead insurance companies to raise the cost of insurance and self-insured retentions, and potentially impact availability of insurance.

Drivers of social inflation include a variety of public, political, legal, and economic factors.

Some examples are sensationalized jury awards; excessive publication by news and media outlets; dramatization of cases through documentaries, podcasts, and other forms of entertainment; legal funding; alterations and erosion of tort reform laws; and catastrophic events.

The range of factors makes it difficult to predict, and subsequently combat, social inflation, but as these factors continue to evolve, the insurance industry, and those who counsel the industry, must remain attuned to, and abreast of, societal changes.

Juries today are influenced by a variety of social-inflation issues reported in the media relating to government stalemates, international relations, the regulatory climate, pandemics/epidemics, the performance of the stock market, riots, and natural disasters.

At the heart of social inflation is the impact that bias—created by social media and various news agencies—can have against corporations and businesses. The idea that corporations are bad actors is a theme used by crafty plaintiff lawyers promoting the reptile theory.