You may have heard or read that the insurance industry is experiencing a “hard market” right now. What does that mean? It typically refers to a marketplace that has increased premiums, stricter underwriting, and a tighter appetite of what risks insurance companies are willing to cover. And while impacts like material costs, labor shortages, and prolonged repairs are having an impact, some insurance coverages are facing great impacts from social inflation as well.
What is Social Inflation?
According to the National Association of Insurance Commissioners (NAIC), social inflation is a term to describe increasing litigation costs brought by plaintiffs seeking large monetary relief for their injuries. They also reference two specific concerns around this idea – “nuclear” verdicts and third-party litigation funding.
Nuclear Verdicts
For a verdict to fall into this nuclear category, it has to exceed $10 million in punitive and compensatory damages awarded. The NAIC cited a study by the Institute for Legal Reform found that showed nuclear verdicts were most frequently found in product liability (23.6%), auto accident (22.8%) and medical liability (20.6%) cases. The most common intersection of these claims is in commercial auto, where auto accidents and medical liability is heavily preyed on by attorneys.
Third-Party Litigation Funding
Paying for other people’s lawsuits? It may be becoming big business. In fact, over $17 million has been spent globally by financiers on funding lawsuits for others. NAIC further notes that a Swiss Re report found that third-party litigation funding is “contributing to growing loss ratios for excess liability, commercial auto, medical malpractice and general liability” and leading to increased premiums for consumers.
Impact to You
All these components add up to more and higher claims that insurance companies are trying to offset. And even with higher rates, the Insurance Information Institute reports show that the property & casualty insurance industry is likely to remain unprofitable until 2025. So, for you, higher premiums are currently the likely trend in insurance.
How high are these increases? Different companies will have different approaches. Get in touch with Brandon Patterson at our agency by calling 865.453.1414 or emailing brandon@ownbyinsurance.com to discuss your insurance options and find the price and coverage that’s right for you.