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Social Inflation and Property/Casualty Insurance

Frequently Asked Questions

Is a wave of social inflation upon us?

By Tim McCarthy

Social inflation, loosely defined by some as an increase in insurance claims costs due to increased litigation and larger jury awards, can be tricky to pin down. A catastrophe typically leaves a discrete and unambiguous mark on insurer losses, allowing observers to draw a clear line between cause and effect. The evidence for social inflation is usually inferred. Rather than one unambiguous causal link, there may be multiple indicators that point to social inflation. That said, we see several indications that suggest that social inflation is indeed more significant today than it had been in some time.

To understand why, let's break our headline question into a few chunks.

Are insurers generally experiencing higher liability losses?

Calendar Year Loss Ratios Preview
Calendar Year Loss Ratios

General Liability Overall vs. Commercial Umbrella/Excess

Are insurers generally experiencing higher liability losses?

Yes. According to ISO statistical data and data from insurers’ annual statements, some coverages within general liability, commercial auto, and commercial umbrella/excess have experienced growing loss ratios since around 2015—or earlier.

For instance, according to an analysis of ISO statistical data containing general liability and commercial umbrella/excess experience, overall calendar year loss ratios (compared to charged premium) stood at 52.9 percent in 2015. They've climbed nearly every year since, landing at 61 percent in 2019. The trend has been even sharper for the commercial umbrella/excess loss ratio, which started deteriorating after 2012 (39.1 percent) to finish 2019 at 57.9 percent.

This is also during a period of generally rising rates for general liability and commercial auto based on the ISO MarketWatch® renewal indices for risks of all premium sizes. This generally indicates that lower rates aren’t driving the increasing loss ratios.

Could rising claims frequency be the culprit for general liability?

General Liability Occurence Frequency Preview
General Liability Occurrence Frequency

General Liability Premises/Operations Accident Year Occurrence Frequency

Could rising claims frequency be the culprit for general liability?

It doesn't appear to be. In fact, across several coverages experiencing higher losses, claims frequency has been relatively flat or trending down. This would appear to support the view that there has not been an increasing propensity to sue.

Take the premises/operations coverage inside general liability—from 2015-2018, ISO data shows calendar year loss ratios increasing from 63.2 percent to 72.3 percent. Yet claims frequency for this coverage fell for every year except 2018, where it notched a modest increase.

When we look at severity trends during this same period for premises/operations, we see increases in both property damage and bodily injury claims severity.

Couldn't this be plain-old economic inflation at work?

Unlikely. For one thing, insurer pricing models and loss reserves generally account for inflation, as does the loss development and trend processes that Verisk undertakes to produce our prospective loss costs. Indicators of macro-economic inflation aren't showing a sharp uptick, either.1 Loss ratios are significantly deteriorating in commercial umbrella/excess, which suggests that insurers aren't necessarily experiencing the cumulative effects of rising prices but the impact of very large claims.

So, if we've ruled out rising frequency and economic inflation, it must be social inflation, right?

We do see suggestive indicators. Here are a few:

Larger jury awards

In 2019, the Wall Street Journal reported "a more than 300% rise in the frequency of verdicts $20 million or over in 2019 from the annual average from 2001 to 2010."2 The commercial auto industry, in particular, appears to be experiencing a sharp uptick in large verdicts. According to one report, "jury verdicts against the trucking industry have increased by more than 550%, with an average award going from $2.6 million in 2012 to more than $17 million in 2019."3

Beyond potentially driving up an individual insurer's losses, these verdicts may be acting as a force multiplier throughout the legal landscape. In a 2020 report, The Insurance Research Council suggested that "very large verdicts have a strong signaling effect on insurance claimants and insurers, resulting in higher settlement costs across a broad class of insurance claims."4

Litigation funding is growing

Accessing what is essentially seed capital for litigation has given the plaintiff's bar a multi-billion dollar war chest to pursue cases.5 As we've noted elsewhere, litigation funding may disincentivize settlements and incentivize the pursuit of more suits and/or larger jury payouts, which could lead to higher insurer losses and claims expenses.

Public opinion

In a survey of public opinion research regarding attitudes about income inequality and corporations, the Insurance Research Council suggested that negative reactions toward both may be co-mingling to drive juries to mete out costlier judgements.6


A deeper discussion of the potential impacts of social inflation on the property/casualty insurance industry.

What can insurers actually do about this?

There are several steps insurers could consider, including leveraging legal analytical tools, their own internal legal data, and making plans for possible "nuclear" verdicts so they're not caught off-guard should one materialize. Regularly reviewing and updating rating information, especially in times where social inflation may be significant, would also be a best practice.

Since it is generally understood that the most purchased attachment point for commercial umbrella/excess has not changed in over 30 years, a greater percentage of commercial auto and general liability losses are being responded to by those policies and may be an area to monitor closely.

What's Verisk doing about all this?

Verisk routinely reviews our methodologies, actuarial rating information and exposure bases to help maintain consistency with current trends. For instance, in response to rising losses, Verisk has raised the increased limit factors in its general liability program for each of the past three years and will do so again in 2021.

Thanks to our work in response to past bouts of social inflation, we developed responsive actuarial methodologies that can help us derive more accurate rating-related information to help insurers mitigate the potential impact of social inflation.

How can insurers identify potential indicators of social inflation?

Access the latest available ISO estimates of future expected insurance costs.

Forms Rules Loss Costs

Forms, Rules, and Loss Costs

ISO Forms, ISO Rules, and ISO Loss Costs are standardized tools that insurers can use to cover and price risk in commercial and personal lines of insurance.

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Actuarial and Strategic Data Insights

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Iso Datacube

ISO DataCube

ISO DataCube™ provides aggregate premium & loss experience data, on a granular level, to help you make important decisions about your portfolio.

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ISO Size-of-Loss Matrix

Leverage an industry-leading data and analytics platform for high-level graphical visualizations across a variety of research needs.

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Litigation funding may incentivize the pursuit of more suits and larger jury payouts, which could lead to higher insurer losses and claims expenses.

Contact Us to Learn More

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  1. National Income and Products Account,” Bureau of Economic Analysis, U.S. Department of Commerce, March 25, 2021, accessed on April 23, 2021.
  2. Telis Demos, “The Spectre of Social Inflation Haunts Insurers,” The Wall Street Journal, December 27, 2019, accessed on April 23, 2021.
  3. Kim Palmer, “A few industries drive commercial insurance rates higher for everyone,” Crain’s Cleveland Business, January 26, 2020, accessed on April 23, 2021.
  4. Social Inflation: Evidence and Impact on Property-Casualty Insurance,” The Insurance Research Council, accessed on April 23, 2021.
  5. $2.3 Billion of Capital Deployed Over 12-Month Period Across U.S. Commercial Litigation Finance Industry, According to First-of-Its-Kind Study,” BusinessWire, November 19, 2019, accessed on April 23, 2021.
  6. “Social Inflation: Evidence and Impact on Property-Casualty Insurance”

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