Allianz Commercial warns social inflation is unsustainable

Rising social inflation driven by nuclear jury awards in the US is “not sustainable” as the costs of liability claims spiral, according to Allianz Commercial, as it published a report highlighting five liability loss trends facing industry. “Such upwards trends in social inflation are not sustainable for the long term, as the increasing costs from nuclear verdicts ultimately fall back on businesses, consumers and insurers,” says Joerg Ahrens, global head of key case management, long tail claims, Allianz Commercial. He adds that in the absence of effective tort reform, greater cooperation is needed between insureds and insurers alongside a tougher stance on settlements. Nuclear verdicts handing down compensation awards of more than $10m increased by 29% in the US last year and thermonuclear verdicts in excess of $100m recorded a 35% rise, according to Marathon Strategies. Allianz Commercial says awards of such size are a problem for US companies but also for international firms operating in the US. Alfredo Alonso, global head of liability insurance at Allianz Commercial, says liability loss trends are having an impact on the insurance market. “These increasing loss trends are influencing insurers’ perspectives on issues such as capacity deployment, especially in the US, and the profitability of both older and future underwriting years,” he says. “Collaboration among stakeholders is crucial to managing these changes and controlling liability claims costs.” Analysis of its own claims statistics reveals defective products were the top cause of liability losses for Allianz Commercial’s policyholders over the past five years, accounting for 42% of the value of liability claims and for 29% of the number of claims. In addition to nuclear verdicts, Allianz Commercial highlights four other key liability loss trends: pharma litigation, PFAS, collective actions and robo law. The report says billion-dollar class action litigation has increasingly targeted pharma, food and chemical products in recent years, including high-profile cases involving opioids, talcum powder, indigestion medication and herbicides, with claims that products cause cancer particularly problematic because of the long latency of symptoms. “Product liability claims in the pharmaceutical sector are typically costly and complex, with multiple parties, higher defense costs and higher awards. Due to the nature of this industry, a harmful product or ingredient can spark multiple actions spanning many producers, resulting in a large accumulation of losses from multiple insureds from one event,” says Arne Holzheuer, a global practice group head for liability in the chief claims office at Allianz Commercial. PFAS has emerged as a growing area for litigation, particularly in the US, but it is also starting to spread to Europe. Allianz Commercial says the extent of future litigation is uncertain, but further regulatory measures may play a part in shaping the outcome. Allianz Commercial says while social inflation is largely a US phenomenon, Europe could see a further rise in collective actions, with consumer groups already starting to use collective redress frameworks; a record number of class actions were filed in Europe last year, led by product liability, consumer and personal injury.

Allianz Commercial warns social inflation is unsustainable

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