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Social inflation in the time of COVID—Is the pandemic distracting casualty insurers from the bigger threat?

By Mia Finsness, Managing Executive, Global Casualty Underwriting and Claims

If 2019 was the year of social inflation, then 2020 is undoubtedly the year of COVID-19. Since March, all industry focus has been on the pandemic and the effect it will have on profitability across the insurance industry. Fortunately, we can now say eight months into the pandemic that it does not appear that COVID will be a material event for casualty insurers. What should be more concerning is the possibility that the insurance industry’s laser focus on COVID is distracting us from the larger, more menacing threat of social inflation.

In a best-case scenario, COVID has provided a momentary pause from social inflation, and the social inflation trends we saw pre-COVID will continue in the same vein as courts reopen. However, the more likely and troublesome scenario is that COVID will exacerbate the previous iteration of social inflation, leading to a new period of “hyper” social inflation.

Social inflation: a recap

Social inflation is a term used to describe the rising costs of US liability claims as a result of societal trends. The term was first coined in the 1980s during the asbestos litigation crisis. The current iteration is attributable to new factors, including:

  • Rising costs and stagnating wages: Costs are outpacing inflation and the average household income is falling behind inflation. The median annual household income according to the US Census Bureau was $61,937 in 2018.
  • Skyrocketing health care costs: US health care spending grew 4.6% in 2018, reaching $3.6 trillion, or $11,172 per person, which is the highest of the OECD countries.
  • Pervasive media influence: Billion-dollar media headlines are the new normal. Data from jury focus groups indicates that potential jurors now perceive such numbers to be “Monopoly money.”
  • Legal advertising: Plaintiffs’ attorneys advertise their large wins through a variety of sources and are setting floors for future cases.
  • Changes in the tort landscape: Damages caps in many states are being successfully overturned.
  • Reptilian trial tactics: A new school of instruction for plaintiffs’ attorneys teaches them how to trigger the reptilian part of jurors’ brains that makes them want to punish commercial defendants and award large verdicts.
  • Litigation funding: Traditional investors are now investing in civil litigation—a $9.5 billion industry—as an alternative to the traditional stock market.
  • Polarized political climate: The media’s focus on polarizing topics like the opioid crisis, mass shootings, and sexual abuse scandals has galvanized grassroots movements in favor of victims and against large corporations.

Social inflation is a uniquely American phenomenon because the United States is the only country in the world that routinely uses jury trials for civil cases. Jurors have unconscious biases derived from the culmination of their life experiences. Their constant exposure outside the courtroom to the media’s spotlight on growing inequality in particular breeds resentment and a feeling of powerlessness. As jurors in civil cases involving large, corporate defendants, they have an opportunity to engage in an alternative means of wealth redistribution in the form of colossal verdicts that are seemingly uncorrelated with the injuries suffered.

". . . jurors’ constant exposure outside the courtroom to the media’s spotlight on growing inequality in particular breeds resentment and a feeling of powerlessness."

The following are just a few examples of nuclear verdicts from 2019 that are indicative of the modern social inflation environment:

State Verdict
Trucking accident injuring one person.
Duck boat accident killing and injuring many.
Trucking accident killing five people. 
Automobile accident injuring one person. 
Pesticide product allegedly harmed two people. 
New York
Medical accident during surgery injuring one person. 
Medical accident during a delivery injuring one person 
Pharmaceutical product led to unwanted side effects in many persons.
Living conditions in an apartment building complex resulted in one death.
New York
Construction site accident killing one person 


Social inflation post-COVID: a prediction

Unfortunately, the pandemic is likely to exacerbate social inflation. Current social and political issues such as police brutality and riots will increase the potential for larger, more socially inflated verdicts, just as polarizing topics like sexual abuse, mass shootings, and opioids contributed to social inflation before COVID.

In addition, the COVID economy will significantly impact jurors going forward. Fifty-nine million people filed jobless claims between March 2020 and September 2020. Unemployment intensifies the pain of rising costs of necessities such as housing,health care, and education. Indeed, the costs of health care in particular have been laid bare by COVID. In 2018, over 157 million Americans received health insurance through their work. During the pandemic, many of the unemployed lost their health insurance.1Not having health insurance amplifies the cost of health care when it’s needed and has the potential to bankrupt American households, which have median incomes of $61,937 a year.

Compounding this reality is the fact that the pandemic has fueled demand for health care services, particularly for lower income and vulnerable populations who are susceptible to COVID. In June, the New York Post broke down a whopping $1.1 million, 181-page hospital bill that a COVID survivor faced.2 The article drew into sharp focus the staggering costs of health care in the US and made it clear to readers that the pandemic will hit the most vulnerable populations hardest in two ways: first through their health and then through their pocketbooks. Indeed the Post article, like many others in the media, contributed to the perception of extortionate costs among potential jurors.

Health care is a hot-button political issue in the current election cycle, and there is much publicity surrounding the claim that only in America do people declare bankruptcy from health care costs. Moreover, media speculation regarding inevitable inflation (not of the social kind) due to governmental fiscal policies will only strengthen jurors’ perceptions that medical costs will continue to increase over time. Indeed, when they are sitting in the jury box, a suggestion by plaintiff’s counsel that future medical costs for a baby with brain damage will be $50 million may not seem so irrational for jurors in light of these influences.

Meanwhile, the US stock market achieved record-breaking highs over the summer. The pandemic has highlighted the disconnect between the stock market, in which only the wealthiest 10% of American households invest, and the rest of the economy. Extensive media coverage related to these events creates the perception among Americans (i.e., potential jurors) that the rich are getting richer while the poor and vulnerable suffer. If there is a chance to engage in some wealth redistribution, it’s not unreasonable to believe that jurors will seize the opportunity to “right the ship” and award a large verdict.

Opening of the courts (and the floodgates)

Until recently, most courts were closed and there was an unfamiliar lull in litigation activity as a result. In August, a few civil jury trials began for the first time since the pandemic shutdown and there are already indications that social inflation will not improve post-COVID.

In one of the first trials to resume, a jury awarded $98 million against a public social services organization for the deaths of two children.3 In addition, several large verdicts were upheld by appellate courts in August, including a $50 million award in a police brutality case, a $59 million award in case involving an exploding Bunsen burner and a $33 million award in an asbestos case.4

And what about frequency? Prior to COVID, the consensus was that social inflation was a severity, not frequency, event. In some respects, COVID may result in that trend continuing—at least in the short term. There is evidence to support the notion, for example, that automobile accident frequency is down due to people working from home, but that severity is up due to drivers speeding on empty roads. However, it is questionable whether this trend will endure. New civil case filings in federal court were up 43% as of the end of June—compared to the same time the previous year. The filings were driven by personal injury and product liability cases, which increased nearly fourfold.5

Selling insurance during a pandemic

Whether COVID triggered the liability insurance hard market or merely coincided with it is open to debate. Undebatable is the fact that at a time of so much uncertainty, casualty underwriters need to react swiftly to combat social inflation and mitigate long-term exposure to insurers’ balance sheets.

Crucially, we will not know for some years whether the premiums we charge today are enough for the policies we sell, because the tail on liability claims is long. It could be anywhere from two to fifteen years depending on the risk class. Fundamentally, the long-tail nature of liability claims reflects the length of time it takes civil cases to churn through the court systems, and this length of time will only increase as a result of pandemic-related court closures.

". . . we will not know for some years whether the premiums we charge today are enough for the policies we sell, because the tail on liability claims is long."


Pricing inadequacy partly explains why some insurers are experiencing social inflation-related pains today. Verdicts rendered in 2020 simply do not reflect underwriters’ expectations from years ago when the policies were issued. For example, in 2019 a Maryland jury returned a verdict of $229 million6 for alleged medical malpractice during delivery of an infant. Approximately $200 million of the award was for future medical expenses, clearly evidencing the jurors’ perceptions of skyrocketing medical costs. Notably, the alleged malpractice occurred in October 2014–five years before the jury would ultimately render its verdict. Did insurers in 2014 price for the possibility of such an enormous verdict? The answer is surely “no,” and the industry today needs to start thinking about the cases going to trial tomorrow and the factors that may influence their outcomes.

Many things can happen between an accident that occurs today and a trial that occurs in 2028 that will impact claim valuation. There are too many unknowns to accurately predict what liability claims will be worth in eight years’ time, which makes it hard to adequately price policies today. Underwriters who survive this next period of social inflation will be those who not only aggressively push for rate increases, but also meticulously manage their overall portfolios by scaling back limits, diversifying attachment points and risk classes, and tightening up terms and conditions by adding exclusions that mitigate certain “inflammatory” types of exposures like sexual molestation or assault and battery

". . . the industry today needs to start thinking about the cases going to trial tomorrow and the factors that may influence their outcomes.”

Conclusion: Batten down the hatches

As we continue to live with COVID and celebrate the long-awaited return of a hard market, we must keep our eye on the ball and remain vigilant at assessing and addressing the looming threat of a post-COVID superstorm of social inflation. Absent any significant changes in the US tort system, or any meaningful economic and social reform, it is likely that hyper social inflation will become a new reality. We must adapt to the times as an industry and be prepared to face it head on.

1 “Employer-Based Health Care, Meet Massive Unemployment,” Jeneen Interlandi, New York Times (June 29, 2020).
2 “Breaking down ‘miracle’ coronavirus survivor’s $1.1M hospital bill,” Nicole Lyn Pesce, New York Post (June 17, 2020).
3 Judith Cox et al. v. Washington, Dept. of Social and Health Servs.
4 Black v. Hicks et al.; Yvonne Yanes et al. v. The City of New York; Ann Finch v. Covil Corp.
5 “Federal Caseload Rises 30%, Fueled By Product Liability Suits,” Dorothy Atkins, Law360 (August 19, 2020).
6 Zubida Byrom et al. v. Johns Hopkins Bayview Medical Center Inc.