Global insurance executives are worried about the hefty monetary awards juries have been handing out to plaintiffs. The trend of larger jury payouts, known as “social inflation,” could lead to a $200 billion deficit in global reserves, according to industry vet Stephen Catlin. In fact, Travelers recently said there was the chance of an “increasingly challenging tort environment” as its profits fell.
When it comes to professional liability cases, insurers have seen “a tripling of verdicts over $10 million over the past three years,” said Rob Francis, who runs healthcare underwriting at ProAssurance — for example, a recent $230 million settlement against a Baltimore hospital, which is now the largest U.S. malpractice award to date.
“There is a growing social mood against big business,” said a chief underwriter of another global insurer. “Juries think they can hold big companies to account without consequence.”
That wasn’t the case a decade ago when big companies had little concern about juries. “Ten years ago, the corporate community had a sense [that] they had won the tort reform battle,” said Robert Reville, CEO of Praedicat. “Since then, the price of insurance has declined dramatically. So, you have 10 years of declining prices, and 10 years of reserves being released, and insurers being deemed profitable. But over that time, they have accumulated exposure.”
One area of great pain for insurers: bodily injury claims. According to data from Swiss Re, the median cost of the top 50 bodily injury claims in the U.S. rose from around $28 million in 2014 to over $54 million in 2018.
“We’re seeing claims for opioids, talc, repetitive head injuries caused by sports and even for loud noises in occupational settings,” said Reville, whose firm believes “the next opioids” will be antibiotics, diesel and sugar.
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However, not everyone is losing sleep over the higher payouts, with some insurers saying that the premiums insurers charge will eventually reflect the cost of bigger payouts.
“Like all things in insurance, there is volatility,” said Robert Childs, chairman of Hiscox. Social inflation “has added some costs to our business, and it’s going to take some time for price increases to overcome that. I don’t see it as a catastrophe. I see it as an adjustment.”
