Insurance industry launches campaign to take on US plaintiff bar and combat social inflation

Zurich told Commercial Risk that it is making progress on a campaign to bring insurers and other parties together to tackle social inflation through a range of new tactics and fight back against the US plaintiff bar for the ultimate benefit of customers.

The insurer’s group chief claims officer Ian Thompson said that as nuclear jury awards in the US play through again post Covid-19, carriers must get organised to combat this trend and ensure these huge costs aren’t simply passed onto clients through higher insurance rates and more restrictive cover.

He explained that social inflation has reared its ugly head again, predominantly in the US, after courts shut down for the pandemic, with “mega-nuclear” awards above $100m back in vogue.

This means that companies and insurers are suffering big liability losses once more. Thompson and Zurich believe it is vitally important that insurers don’t just sit back, accept these losses and simply pass them onto customers through insurance.

“We have got to recognise that there are better ways to manage the situation,” Thompson told Commercial Risk.

“If you take what is happening around a very organised plaintiff bar, one of the challenges has been the defence bar has not been as well organised. So, without being anticompetitive, insurers have got to get into a position where we are really fighting fire with fire. We need to ensure we are getting the strongest defence positions out there,” he added.

And the good news is this process has already begun in the US, with Zurich taking a leading role in persuading insurers, reinsurers, brokers and customers to come together and discuss the best way forward.

“There is something that can be done here and we are making some good traction to bring the market together to act. People recognise there is the need to do something, and people are willing to talk and discuss. This is helpful if it is done collectively and this is exactly what the plaintiff bar has been doing. The plaintiff bar has got its act together and the insurance market has got to get its act together,” said Thompson.

He added that turning the positive discussion into market-wide action is the next challenge to overcome but the mood music is extremely positive.

“The fact there is a willingness to turn up to some of the roundtables we have facilitated, and the seniority of people attending, suggests the insurance industry is ready and, hopefully, able to act on this issue on behalf of the market and our customers. There are really positive signs,” he said.

“Social inflation has been around for years, and now we need to evolve our counter to this threat. It will be a long play but we have got to start somewhere,” added Thompson.

He explained some of the tactics that the insurance industry and defence bar could use to help redress the awards being secured by plaintiffs.

Of paramount importance is developing counter measures to reptile theory, which encourages jurors to envision themselves in the same situation as claimants and “send a message to the defendant” with a high jury verdict, despite this being banned in court. But Thompson put forward a range of other measures too.

“Rather than not talking about a number when we go to court because people feel it plays into the plaintiff’s hands, actually we could say there is liability here and suggest a reasonable number. Fighting and challenging around the visibility of litigation funding by lobbying for transparency with government and industry is another issue. Also in the US, the plaintiff bar is extremely influential. There is money behind it that influences a range of things like the application of tort law and legislation favoring plaintiffs. So we too need to be strong when it comes to lobbying,” he said.

Thompson stressed that lower awards and social inflation would clearly help the insurance market by reducing excessive claims, and this would be hugely beneficial for customers.

Lower losses would impact how much liability covers costs and the level of self-insurance that might be needed because traditional risk transfer isn’t available, he explained.

The liability market has already tightened for buyers, in part because of social inflation. Liability reinsurance renewals at 1 January are looking difficult for insurers and are likely to make things worse for primary buyers.

“Ultimately this is about the customers. We need to be competitive in the market and make sure it’s not all about just passing costs on. The ways in which we can address loss-adjusting costs and the level of settlements that the market recognises as excessive is important. We have a responsibility to do something about that other than just sitting back and admiring the problem,” concluded Thompson.