Severity of losses in certain lines of US Casualty is outstripping economic inflation 

Social inflation is helping to drive up the severity of losses in various lines of US Casualty insurance, according to a new report. 

The report highlights that commercial auto, professional liability, product liability, directors' and officers' liability have all been impacted by social inflation. Societal trends and attitudes have driven more litigation and larger jury awards, all of which have resulted in higher claim costs in these lines. 

The average increase in loss severity in product liability over the past decade until 2023 was 20.4%, far outstripping inflation which ran at 2.7%. Meanwhile, the loss severity in occurrence liability lines rose by 11.1% over the past decade. 

In the US, there is less trust in public sentiment towards larger corporations, providing US attorneys with an effective tool to try and win cases. Mistrust of the federal government and banks all pose a challenging landscape for insurers, the report notes. 

Knowingly sacrifice safety? 

In some polling by DecisionQuest, 67% of jurors polled believe that companies knowingly sacrifice safety to make profit. In another poll, 58% of them believe that a company should bear some responsibility when a customer is injured while misusing a product. 

“When a nuclear verdict is awarded, it impacts not only the specific claims but also all other open claims, as plaintiffs guided by their attorneys, pursue similar verdicts or settlements, depleting an insurers’ existing reserves”, said David Blades, Associated Director of Industry Research and Analytics at AM Best. 

Nuclear verdict 

There are other factors at play too, in helping to drive social inflation as highlighted by Travelers. 

The insurer noted that there is an increasing desensitisation to larger verdicts, the so-called ‘nuclear verdict’ of jury awards over $10 million, due to the excessive media reporting of it. The median cost of these verdicts increased by 35% from $20 million to $27 million during 2015-2020. 

Similarly, there has been an erosion of tort reform in the USA, with the elimination of monetary caps in some states that have tipped the scales in favour of plaintiffs, with larger jury awards. 

Furthermore, there has been a change in the sophistication of the tactics and strategies of attorneys, with more advanced marketing to target new customers and more emotional messaging during cases.