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Triple-I Blog | Social Inflation:Eating the ElephantIn the Room


“Social inflation” refers to rising litigation prices and their impression on insurers’ declare payouts, loss ratios and, in the end, how a lot policyholders pay for protection. It’s an necessary concern to grasp as a result of – whereas the ways related to it sometimes have an effect on companies perceived as having “deep pockets” – social inflation has implications for people and for companies of all sizes.

The insurance coverage traces most affected are business auto, skilled legal responsibility, product legal responsibility, and administrators and officers legal responsibility. There is also proof that private-passenger automotive insurance coverage is starting to be affected. As elevated litigation prices drive up premiums, these will increase are usually handed alongside to shoppers and may stifle funding in innovation that might create jobs and in any other case profit the economic system.


For extra on this, see: Social Inflation: Evidence and Impact on Property-Casualty Insurance by the Insurance Research Council (IRC).]


Much of what’s mentioned and printed on the subject has been extra anecdotal than knowledge primarily based. Reliably quantifying social inflation for score and reserving functions is difficult as a result of it’s simply one in every of many elements pressuring pricing. We’ve discovered that the most significant means to consider social inflation and its parts is to match their impression on claims losses over time with progress in inflation measures like the Consumer Price Index (CPI).

Litigation Funding

It’s been stated that the greatest solution to eat an elephant is “one bite at a time.” Because of the range and complexity of social inflation’s causes and results, we’re launching a sequence of weblog posts devoted to every one in flip. The first set of posts will look intently at litigation funding: the apply of third events financing lawsuits in trade for a share of any funds the plaintiffs would possibly obtain.

Litigation funding was as soon as broadly prohibited, however as bans have been eroded in current a long time, the apply has grown, unfold, and turn out to be a contributor to social inflation.

[See: Litigation Funding Rises as Common-Law Bans Are Eroded by Courts on the Triple-I Blog]                                                                                                  

Litigation funding appeared a superb place to start this sequence as a result of it’s a definite authorized technique with a transparent historical past that doesn’t contain numerous the sociological subtleties inherent in different facets of social inflation. We’ll look the emergence of the apply, the way it got here to the United States from overseas, and monitor its evolution with that of social inflation. We’ll additionally focus on the present state of litigation finance, together with moral issues which have been raised round it inside the authorized group.

This sequence might be led by IRC Vice President David Corum with help from our companions at The Institutes and enter from our members, in addition to consultants past the insurance coverage trade. As befits any dialogue of a fancy subject, we sit up for your reactions and insights.

More from the Triple-I Blog

What is social inflation? What can insurers do about it? (January 25, 2021)

Litigation funding rises as common-law bans are eroded by courts (December 29, 2020)

Lawyers’ group approves greatest practices to information litigation funding (August 19, 2020)

Social inflation and COVID-19 (July 6, 2020)

IRC examine: Social inflation is actual, and it hurts shoppers, companies (June 2, 2020)

Florida dropped from 2020 “Judicial Hellholes” checklist (January 14, 2020)

Florida’s AOB disaster: A social-inflation microcosm (November 8, 2019)


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