What Can We Do About Social Inflation?

Social inflation, or the rise of insurers’ costs to cover claims above general economic inflation, is a growing threat to insurance affordability.

The struggle to quantify social inflation’s causes is one reason policymakers have yet to reduce its impact. However, there is enough information in the public domain about social inflation to guide a mitigation plan, but success will take collective work on many fronts from all stakeholders.

While social inflation may impact any insurance line, the liability lines most under duress due in part to higher litigation costs are commercial general, commercial automobile, personal automobile, professional (e.g., errors and omissions), and excess and umbrella insurance.

For these products, unforeseen rising costs threaten coverage affordability and, in the long run, availability. In diminishing coverage scenarios, a ripple of economic consequences can emerge for insurers and the policyholders who rely on them.