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Best’s Special Report: Social Inflation Remains a Thorn in the Side of Casualty Insurers

Loss severity for several U.S. casualty lines of insurance business has exceeded economic inflation over the past decade, suggesting that other factors are influencing claims costs for indemnity and expense payments, according to a new AM Best report.

According to the Best’s Special Report, “Social Inflation Remains a Thorn in the Side of Casualty Insurers,” the lines of business most affected by social inflation are commercial auto, professional liability, product liability and directors and officers liability insurance. Loss severity for these lines has exceeded the rate of economic inflation, in most cases by double or more, with social inflation likely being a key factor. For example, the average loss severity increase over the past decade to 2023 in the product liability line was 20.4%, compared with average annual economic inflation of 2.7%. On the other liability – occurrence line, which captures excess liability and umbrella coverage, loss severity increased by an average of 11.1% in the last decade. The growing involvement of attorneys in commercial lines is leading to an ongoing rise in claims costs, which negatively affects insurer loss ratios.

“The ‘social’ part of social inflation refers to shifting cultural attitudes about who is responsible for absorbing risk - the insurer or the plaintiff – and these dynamics continue to evolve, which makes social inflation tough to quantify and even more difficult for insurers to predict and mitigate,” said Justin Aimone, associate analyst, AM Best.

The report notes studies that have shown sentiments toward major public corporations have been on the decline, and consequently, attorneys have been able to capitalize on the shifting attitudes. This decline in confidence in big business, as well as in other institutions (e.g., federal government, banks), is a unique problem for insurers, because jury verdicts have shown that many believe a company bears some responsibility even in cases of injury due to misuse of a product.

“When a nuclear verdict is awarded, it affects not just the one claim, but also all other open claims, as plaintiffs, guided by their attorneys, seek a similar verdict or settlement, rendering an insurer’s existing reserves inadequate,” said David Blades, associate director, industry research and analytics, AM Best. “The impact on adverse loss development then flows into pricing, as insurers adjust their view for the affected lines.”

Third-party litigation funding also has been a leading factor in the rise of social inflation, and insurers have been challenged in using pricing models to mitigate legal costs arising from the growing number of outsized jury awards, or owing to legal proceedings that are taking longer than expected to be resolved. Third-party litigation funding is contributing to worsening loss ratios for excess liability, commercial auto and general liability, leading to higher premiums for consumers.

The high financial awards can have a significant impact on insurance companies writing casualty lines and on their clients. Understanding how to best manage their portfolios—as well as managing such claims when they do occur— will remain a critical aspect of insurers’ enterprise risk management to limit severe losses. AM Best believes that companies that best understand the nature of the risks in their portfolios and how longer durations will affect their caseloads have a better chance to make needed changes in actuarial parameters and assumptions to deal with social inflation more effectively.

To access the full copy of this special report, please visit

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.


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