Social Inflation: Just Another Excuse For Rate Increases Or A Genuine Threat To Profitability?

Whilst not new as a concept, social inflation is often used as justification for rate increases in renewal discussions in liability classes. This webinar will explore what is meant by the term ‘social inflation’, the drivers of social inflation, why it’s different today compared to ten years ago, and what can be done to mitigate the impact of social inflation. Attendees will gain a better understanding of the causes and consequences of social inflation and how this can impact insurance renewals.

This webinar’s host, Max Carter of New Dawn Risk, provided some commentary on this session, sharing key takeaways and the importance of social inflation in the Professional Liability field. See his remarks below.

Why is this topic important for professional liability practitioners?

Social inflation is a phenomenon that affects almost all types of non-marine liability claims, and is particularly prevalent in bodily injury or personal injury claims. The drivers for this social inflation are hard to pinpoint, but an understanding of these is important for underwriters, claims managers, lawyers and brokers alike.

What are the top takeaways from this webinar discussion?

There’s little doubt that social inflation is real, although it may have been an issue for more years than many practitioners would expect. Drivers include a widening gulf between rich and poor; eroding public trust in corporations and government; increasing influence of pressure groups / movements; and litigation funding. Almost all liability classes are impacted in some form or other, with those exposed to bodily injury and personal injury being most dramatically affected. Mitigation is hard to do, but early settlement is useful in containing inflated damages. Corporations that do the right thing tend to be less of a target, particularly in the case of shareholder derivative D&O claims.

This webinar was full of insightful inquiry. Below were some follow-up questions submitted by our attendees. Please find the panel’s responses below.

Where does social inflation increase the damages in professional liability losses?

Professional liability losses are impacted by social inflation due to many of the same drivers as impact other classes of coverage. Consumer-facing businesses (such as collection agencies, lending businesses, etc.) have seen significant claims inflation in recent years for the same reasons that medical malpractice and EPL have done; society demands that large corporates that mistreat innocent individuals are punished though inflated damages awards. Architects and engineers also face inflated claims where there is bodily injury exposure.

Can the panel speak to exclusions in mitigating social inflation?

By and large, insurers do get to influence what is covered or not covered by the insurance policies that they issue (notwithstanding the propensity for juries in some jurisdictions to award damages whether or not coverage was offered). Certain risks, such as liability as a consequence of contingent bodily injury (in the case of an architect or engineer), could be excluded by insurers.

Are there societal trends that drive social inflation specifically for auto insurance?

Certainly, there are. Whiplash claims are an excellent example and have caused rampant claim inflation for auto insurers. Its difficult to prove or disprove whiplash, and society has taken advantage of this through increased claims. Its unlikely that there is a greater incidence of whiplash injuries following auto accidents today, just that there are more people today willing to claim under spurious circumstances.

Don’t miss out on learning more about this topic. Login to the PLUS website and listen to the recording here.

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Meet the Speakers

Max Carter
Chief Executive Officer
New Dawn Risk

Max started his insurance career in 1984, working as a professional and financial lines broker in London and New York for various organisations including Willis and Marsh. In 2002, Max joined Beazley, where he was responsible for business development within the Specialty Lines team. In 2008, he established the specialty Lloyd’s broker, New Dawn Risk, which he continues to lead today. Max is a member of the Board of Trustees of PLUS.
Monique Banin
Claims Manager

Prior to joining Beazley, Monique spent 15+ years working as an insurance lawyer in a large international law firm, focusing on general liability and construction claims (both coverage and defence). Since joining Beazley’s Specialty Lines claims team in 2020, she has built on her experience in the PI space dealing with complex claims against construction professionals and lawyers worldwide, with particular expertise in the UK and Australia.
Suresh Ellawala
Head of D&O
Price Forbes & Partners

Suresh started his insurance career in 2004. Before that, he was a lawyer, practising in the corporate regulatory field, hence a subsequent move to D&O. He was a senior underwriter until 2019, working at AIG, QBE and latterly Hiscox. He has lived and worked in New York, Paris and Brussels, as well as his native London. He joined Price Forbes to re-invigorate the ML practice: Price Forbes management felt that our clients could benefit from underwriting experience. Suresh holds a BA in law from the University of Oxford.
Richard Kissel
Kissel, Straton & Wilmer

Rich is a founding member of Kissel Straton & Wilmer and has represented the interests of US, London, European and Bermuda insurers and reinsurers for more than 40 years. Backed by a solid team, Richs practice focuses on cyber and technology issues, professional liability for lawyers, accountants, D&O and corporate liability, and miscellaneous E&O coverages. Rich founded the Firms Cyber practice and has drafted numerous cyber policies being used in the London Market and elsewhere.
Heather Marino
Underwriting Manager, Financial Lines
W/R/B London

Heather is currently the Underwriting Manager of the Financial Lines team at W/R/B Underwriting. She joined in November 2014 as a Financial Lines Underwriter and was previously a Regional Underwriting Manager with Berkley Professional Liability in New York. She has been with the WR Berkley Corporation since 2008. Heather began her career in 2006 with American International Group in New York. She holds a Bachelor of Science degree from Boston University.
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