Social inflation is the term used by insurers to describe rising costs of insurance claims caused by social and economic trends, resulting in more litigation and larger jury awards. It is similar to the economic inflation that most of us are familiar with, for example, when we’re talking about home prices going up over time.
In the case of social inflation, verdicts from lawsuits are starting to increase rapidly as juries reach larger and larger verdicts, which in turn is creating a major problem for insurers because they can no longer predict the cost of settling a claim.
“At one time, settlements exceeding $100 million were unheard of – and it’s no longer so,” said Kevin Davis, of Kevin Davis Insurance Services, a Worldwide Facilities company. “A slip, trip or fall once settled for $300,000 may now settle at $1.5 million.”