As an insurance buyer, you may have heard the term “social inflation.” In general, social inflation refers to societal trends that influence the ever-rising costs of insurance claims and lawsuits above the overall inflation rate. As the commercial insurance market shifts, it’s important to understand what’s currently driving social inflation.
- Third-party litigation funding—One of the factors driving social inflation has to do with increased litigation or, more specifically, litigation funding. With litigation funding, most or all of the costs associated with litigation are covered by a third party, which has increased the volume of cases being pursued.
- Tort reform—Tort reform refers to laws that prevent frivolous lawsuits and preserve laws that prevent abusive practices against businesses. However, in recent years, states have modified tort reforms or challenged them as unconstitutional.
- Plaintiff-friendly legal decisions—The overall public sentiment toward large businesses and corporations is deteriorating, and juries are increasingly likely to sympathize with plaintiffs. As a result, plaintiff attorneys often play to a jury’s emotions rather than the facts of the case.
- Large jury awards—There’s an increasing public perception that businesses—particularly large ones—can afford the cost of any damages. This means juries are likely to have fewer reservations about awarding damages. In the current environment, nuclear verdicts (awards of $10 million or more) have become more common.
While it’s impossible to completely eliminate the threat of litigation, it’s important to take the following steps to ensure your business is prepared for a lawsuit:
- Consider purchasing an umbrella policy. Commercial umbrella insurance provides financial protection above the limits of your organization’s other liability policies. It enhances existing liability coverages, helping you respond to gaps in insurance and substantial claims.
- Protect yourself from employment practices claims. Employment practices claims are common and can be particularly devastating given social inflation trends. To protect your business, review your employee handbook regularly and ensure policies related to sexual harassment, workplace violence and similar issues are communicated effectively. For additional protection, you may want to consider purchasing standalone employment practices liability insurance.
- Work with experienced insurance professionals. The insurance market is constantly evolving, and in the face of social inflation, it’s vital to have a competent insurance professional advising your business. Be sure to partner with a broker who has strong carrier relationships and knowledge of your industry.
As the insurance market changes, it’s important to understand what’s currently driving social inflation and take proactive steps to protect your business in the face of litigation. For more risk management guidance, contact us today.