Social Inflation

​Dan M. Molyneaux, Jr., CPCU, ARM, CRIS 
Chief Executive Officer ​

​Many of our clients, regardless of industry, are being impacted by market changes in the insurance market. A clean loss record may help mitigate some of the impact, but it does not spare clients from these market actions.
 
This is a big picture trend in the insurance industry. 
​
​Allow me to explain what is happening.

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I have been talking with clients about this for a while without knowing that the term “Social Inflation” has been coined to describe it.  This is simply the reality of jury verdicts in our culture of accountability (or blame, depending on your perspective).  The rising costs of defense are also included in that inflation.

Highly data-driven companies like Progressive and Travelers identified this trend early.  One analyst likened their analysis of the situation to a canary in a coal mine. They will tell you the canary is already dead.  Some in the industry tried for a while to convince themselves the canary was still alive, but they now see the truth.

This reality manifests itself most in severity lines of coverage.

• Umbrella
• Executive Liability like D&O, EPL, Cyber
• Medical Malpractice
• Professional Liability of all types
• Sexual Misconduct

The impact on pricing is multi-faceted, but there are three main drivers.  First, the cost of defense continues to rise.  Second, the claim trends are undeniable.  Insurers need more money to pay losses than ever before.  And, with a desire to limit their exposures, primary insurers reduce the limits they are willing to put up.  The gap needs to be filled by excess insurers who are driven more by actuarial forces than market forces; therefore, they charge more. 

But it also means that as I deliver Umbrella or D&O price increases, I would be negligent in not advising my clients to strongly consider buying more. Simply, businesses (and individuals) face a greater risk of catastrophic losses today than ever before, and there are no signs of this slowing down.

In addition, the reality of Social Inflation impacts how insurers handle claims. Insurers follow these mega (9 figure) and nuclear (10 figure) jury verdicts, and they see the claim trends. They are more willing to settle claims day one now than ever before.  They are more likely to put up the policy limits and walk away, which is a reduction of the amount of control insureds have over their own claims.

All of this puts a greater emphasis on a broader view of risk management. It is nowhere near enough to simply purchase an insurance policy. Businesses should demand a partner that can help them survey their array of risks and implement strategies to address them. This is The Molyneaux Way^TM