Analysis shows ‘social inflation’ hitting policyholders and insurers: Rims Riskworld

Increased court awards and settlements are hitting insurers’ loss costs and may force risk managers to buy higher limits, according to an executive at insurance data company Zywave.

Insurers have cited social inflation – increased liability costs above traditional inflation – as a significant cause of increased losses over the past five years, and recent data analysis shows that liability losses are rising, said Kimberly Reilly, principal account executive at Zywave.

She was speaking during a session at Riskworld, the Rims annual conference.

To ascertain the level of increased liability exposures, Zywave examined economic loss data from 237,000 records, which amounted to $770bn in total losses.

The median cost of a single injury has increased (see graph). “It was bouncing around at about $1.5m but is now almost $2m in medical costs,” Reilly said.

She said losses with the largest medical costs are often multiples of the median. For example, losses in the 75th percentile increased from between $2m and $3m in the years before the Covid-19 pandemic to more than $7m in 2023. And losses in the 90th percentile increased from between $5m and $10m to more than $20m over the same period.

Similar increases show in losses that involve a fatality, she said.

“For our risk manager clients, the question is are you protecting your organisations for the future and how do you think about limit adequacy,” Reilly said.

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