‘Social inflation’ refers to rising litigation costs and their impact on insurers’ claim payouts, loss ratios and, ultimately, how much policyholders pay for coverage.

It’s an important issue to understand because – while the tactics associated with it typically affect businesses perceived as having ‘deep pockets’ – social inflation has implications for individuals and for businesses of all sizes.

The insurance lines most affected are commercial auto, professional liability, product liability, and directors and officers liability.

There also is evidence that private-passenger car insurance is beginning to be affected.

As increased litigation costs drive up premiums, those increases tend to be passed along to consumers and can stifle investment in innovation that could create jobs and otherwise benefit the economy.