Settlements exceeding $10M, known as nuclear verdicts, are no longer uncommon. This phenomenon, which has led to rising insurance costs, has been dubbed “social inflation,” and it’s occurring in just about every industry.

Social inflation results from societal trends, including an increase in litigation, broader contract interpretations, plaintiff friendly legal decisions and larger jury awards against businesses. It’s being driven by sensationalized reporting and social media spread, erosion of tort reform, rising medical costs and litigation funding, in which private equity firms invest in jury trials with the promise of a worthy ROI.

The question at the root of social inflation is: What is that suffering worth?

An accident resulting in a blemish on a person’s face that once settled for $300K may now come with a $1.5M price tag. Similarly, it is no longer uncommon to see a trucking accident settlement of close to $100M. When for-profit businesses are at the helm, social inflation reaches its highest heights.

Social inflation has affected just about every Property and Casualty (P&C) policy category. From Directors and Officers (D&O) to Auto and Commercial Carrier, Property, Environmental and Transportation coverage, limits are being retracted, premiums are increasing, and exclusions are surfacing.

Business owners and operators can keep social inflation at bay by incorporating the following best practices into their repertoire.

  1. Manage a well-run, safe organization. Profitable businesses, and those with a real corporate safety program, will receive best-in-class pricing for insurance. Maintain best practices for safety, especially in public areas, including lobbies, parking lots and cafeterias where most injuries are sustained from third parties.
  2. Immediately address suffering during an accident – show you care. When businesses address a person’s injury or suffering immediately, offering help and seeking medical care on their behalf, the chances of the incident morphing into a large claim worthy of a nuclear verdict are reduced.
  3. Document the sequence of events. Take photos of the injured person, the location they were injured and any property damage. Get statements from all witnesses and document what happened clearly, including times and any other relevant information.
  4. Secure the property. Take necessary steps to secure the property and area from further damage, post-accident. These additional costs to secure the property, i.e. boarding up a storefront, etc., are covered by property insurance.
  5. Consider the additional layer of liability due to COVID-19. While no one knows what effect COVID-19 will have on nuclear verdicts and social inflation, the pandemic does add an additional layer of liability for businesses. Employers and building owners/operators must be aware of CDC recommendations and maintain compliance, especially in common areas. Provide guidance on your website or in other public spaces of your new cleaning regimen, and what you’re doing to prevent the spread of COVID-19.

Contact HUB Risk Services for more information on reducing social inflation.