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Social Inflation Is Hard for the Insurance Sector

The Insurance Sector is Suffering from Soaring Social Inflation

Social inflation is accelerating rapidly, putting insurers at risk of unexpected costs and expenses. The cost of insurance claims has risen so quickly and significantly as a result that risk is no longer effectively reflected in pricing.

If this keeps happening, it might eventually affect the ability and the accessibility of entire lines of business insurance. Nevertheless, despite all the chatter, hardly much actually gets done.

Insurance companies are aware that social inflation is a problem, but they are having difficulty quantifying it and developing a practical solution.

The increase in insurance claim expenses above and above economic inflation is referred to as social inflation. It results in court rulings that are favoring plaintiffs and is spurred by changes in how society views litigation.

The two main causes of societal inflation are. First, there is a tendency for juries to identify with plaintiffs’ framing of the issues in a trial versus a company as a result of societal changes that date back to the 2008 financial crisis.

In conclusion

According to Paul Mang, chief innovation officer of Guidewire, social inflation is the increase in insurance claims expenses beyond economic inflation and is causing unexpected claims costs and hazards for insurers, causing pricing to no longer appropriately reflect risk. He covers the key causes of social inflation in this article as well as the steps insurers could take to address this mounting problem.

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