by Ryan J. Beal, CLCS
While “economic inflation” is a core concern when helping your clients plan for their future, how do you account for “social inflation” when managing your own risk?
Social Inflation is an issue that continues to gain steam and intensity, and we are seeing the coverage pricing effects on the insurance industry as a whole, but it has really picked up when looking at the financial industry. The term social inflation describes societal and legal trends regarding increased litigation, legal decisions tipping towards plaintiffs, and much larger jury awards than historic norms. This increased “inflation” has been seen in many cases throughout the financial business since the Financial Crisis of the mid to late 2000s.
Since that time, there have been 4 key shifts that have driven the rise in claims:
- Perspective. The jury pools have been tinted with anti-corporate sentiment dating back to the 2008 Crisis. Jurors tend to show more bias towards the plaintiffs in the name of social justice. Juries strive to hold corporations responsible and make social statements through their awards.
- Litigation Funding. Outside investors are stepping in to fund litigation. They wade into these cases and offer to pay the costs in exchange for a stake in these increased judgment amounts. The probability of victory and the newly outsized rewards have made this investment gamble lucrative.
- Plaintiff’s Bar. The Bar continues to be a force by investing in advertising, social media, technology, etc. in order to influence favorable awards.
- Cap Removal. The state by state caps on punitive or multiple damages is being systematically raised or wiped out entirely. This removes the ceiling on what a plaintiff can demand.
These key trends play a critical role in an insurance company’s ability to evaluate risk. In an industry built on quantifying and pricing risks, it is very hard, if not impossible, to properly underwrite insurance policies based on societal attitudes on the distribution of wealth and a sense of “societal justice”. The verdicts that are being handed down are capsizing both financial businesses and insurers alike, manifesting in a downstream effect on the overall economy.
While the future does not look to reverse many of these trends, and it will be several years before we see the full effects of COVID-19 litigation, there are certainly ways that we can work to mitigate the risk to YOUR business.
- Comprehensive Approach. Work with a risk advisor and an insurance company that understands YOUR space and that takes a hands-on role in the claims process. All parties: from the client, to the broker, to the insurer, need to work in sync to save time, money, resources, and work towards a favorable outcome.
- Expert Partners. Make sure that your risk advisor understands the landscape, where the exposures lie, and how to best protect against your business’ distinct risks.
- Be Proactive. Be prepared and intervene early. In working with your risk advisor, you can talk through current cases and strategize on how to minimize risk and address potential claim scenarios together.
By recruiting key partners from the outset, you can take charge of your future by creating a powerful team around you. We can’t close Pandora’s Box once it has been opened, but we can work through a detailed, and personalized, plan in order to protect your business in this environment.
About Overmyer Hall Associates
Overmyer Hall Associates is one of the fastest growing agencies in the country, quickly becoming one of the largest property and casualty insurance agencies in Central Ohio. Overmyer Hall Associates provides clients with insurance and risk management, specializing in Business Insurance, Surety Bonding, and Home & Auto Insurance. Since its founding in 2011, the firm has been awarded Columbus Business First’s “Fast 50” and “Best Places to Work” awards, the IIABA’s “Best Practices Agency” recognition, Columbus CEO Magazine’s “Best Insurance Broker” and the Columbus Young Professionals Club’s “Wonderful Workplace for Young Professionals” award. www.oh-ins.com