“Social inflation” is not a new term. In fact, it is something we have all heard before. Social inflation occurs when litigation and legal costs go up for insurance carriers.
We have gotten very litigious as a society, and we often hear about large amounts awarded to an injured party. Most recently, the little girl who was burned by her Mcdonald’s chicken nugget. The jury found her mother’s speed of the vehicle, which forced the nugget to fall on her daughter’s leg was not the issue, but that McDonalds was responsible for the temperature of the nugget, and the family received $800,000 in damages. This incident was back in 2019 and just finished up in July of 2023.
The current trend in higher litigation costs, which is attributed to the rise in large financial relief for the plaintiff, is directly related to an increase in your insurance premiums.
Carriers are paying out more than ever, and it can take years in court to play out. This is your defense costs, along with the dollar amount awarded, and insurance carriers have to be able to keep up. Generally, most commercial properties like Condominiums, Cooperatives, rental buildings, retail, offices, etc., have a $1,000,000 primary liability limit. This is very common and used to work out if someone sued for a few hundred thousand. These days people are asking for millions of dollars which not only exhausts your $1,000,000 primary limit but reaches the Umbrella policy as well.
Ding, ding, ding – a direct link to why the Umbrella market crumbled back in 2020, and we are still feeling these effects. Since carriers cannot foresee how a liability claim will transpire, there is only so much they can do. Whether juries believe insurance carriers have deep pockets or they just favor the injured party, the amounts awarded are high and a major factor in increased premiums.
As always, if you have any questions, please reach out to me anytime.
