Session 1 on ʻThe dynamics of social inflation in light of the pandemicʼ investigated the drivers of social inflation and its potential to spread beyond the U.S., with COVID-19 as a potential catalyst.

Top row: Damon Vocke, Partner, Head of Corporate & Regulatory Insurance Litigation, Duane Morris LLP; Darren Pain, Financial Economist, and External Consultant, The Geneva Association; Bottom: Ciara Brady, Global Head of Liability, Allianz Global Corporate & Specialty (bottom).
Key messages
- Social inflation is an insurance buzzword that is not very well defined. Broadly speaking, it refers to all the ways in which insurers’ claims costs rise over and above general economic inflation.
- Outsized litigation outcomes and jury awards grab the headlines and play a key role. More broadly, various legal, societal and behavioural shifts all interact to affect the scale and pace of insurance settlements.
- Recently, there has been a sharp acceleration in claims across several U.S. liability lines. The durability of this short-term trend is unclear and will largely depend on the persistence of the underlying drivers, in particular: the aggressive strategies of plaintiffs’ attorneys, the growth of third-party litigation finance and public recognition of – and anger concerning – social inequality.
- Though largely a recent U.S. phenomenon, there are signs of social inflation in some other countries, too. This is particularly true in securities litigation and associated financial insurance lines (e.g. directors and officers (D&O) liability).
Implications for insurers
- Liability insurers must look through any short-term volatility to assess the long-term trend in claims. Persistent social inflation that goes unrecognised for years can lead to chronic under-reserving and underpricing.
- COVID-19 is creating considerable additional uncertainty for the claims outlook and could reinforce some of the recent drivers of social inflation.
- Given the potential for international ‘contagion’ – the notion that social inflation will, to some degree, spread beyond the U.S. – insurers must monitor global developments across a variety of liability insurance classes, including product liability, medical malpractice and financial lines.