Chill Out While Our PR Experts Do the Work (Return to main brochure)
In 2019, as the insurance cycle predictably turned after 13 years of low rates, the industry apparently needed a public relations term to help make the case that it was suffering losses and needed to raise rates – even though the industry was (and continues to) massively prosper. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020).
The new PR term, rarely used by anyone outside the insurance industry, is called “social inflation.” It was created with “no scientific evidence behind it” and “no sound scientific basis for it.” Dr. Bill Kanasky, Senior Vice President of Litigation Psychology, Courtroom Sciences, speaking during A.M. Best webinar, “The Impact of Social Inflation on Insurance Claims,” November 10, 2020.
“Social inflation” is a vague catch-all term that refers to anything the industry does not like about jurors, the sick and injured, plaintiff attorneys, etc. It is grounded in factual inaccuracies. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020).
As if to demonstrate its meaninglessness, the term continued to be used by industry spokespeople during the pandemic even though the civil justice system had ground to a halt, many states passed laws to immunize wrongdoers from liability, and the industry was not paying claims. A.M. Best webinar, “The Impact of Social Inflation on Insurance Claims,” November 20, 2020. See sources for above sections “Relax at Profit Beach” and “Hoard Your Money at Pirate’s Cove”; Erica James and Raymond Krncevic, “States Take the Lead With Business Covid-19 Immunity Statutes,” Bloomberg Law, October 23, 2020.
“Social inflation” is used to refer to any of the following things, and more. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020).
Large verdicts against giant reckless corporations.
For decades, insurance companies have complained about jury verdicts when they lose cases. This is nothing new. But as experts observe, there are compelling reasons why juries decide as they do. And neither jury nor data paid loss data show any new jury trends. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020); James H. Gordon and Michael E. Bonner, Ansa Assuncao LLP, “The Self-Fulfilling Prophecy of Social Inflation,” Lexology, February 5, 2020; Center for Justice & Democracy, Tort Litigation – By The Numbers (2016).
And importantly, verdicts do not reflect the greatly-reduced sums that insurers actually pay out to claimants, if anything. Jury verdict data do not reflect reductions by remittitur, verdicts overturned on appeal, or settlements reached later at reduced sums. As one researcher put it, “[J]ury verdicts that attract popular attention are not at all representative and often are slashed dramatically by judicial oversight or through other means,” “the larger the verdict, the more likely and larger the haircut,” and generally injured people are undercompensated. David A. Hyman and Charles Silver, “Five Myths of Medical Malpractice,” 143 CHEST 222 (January 2013).
Employment cases prompted by the #MeToo movement.
Fewer and fewer sexual harassment cases can get into court with any kind of claim. That’s because well over half of nonunion private-sector workers are now subject to forced arbitration clauses and class action bans, which rig the process in the employer’s favor by keeping victims completely out of court. By 2024, it is estimated that more than 80 percent of the private-sector nonunion workforce will be bound by these clauses. Economic Policy Institute, Unchecked corporate power: Forced arbitration, the enforcement crisis, and how workers are fighting back, May 20, 2019; Economic Policy Institute, The Growing Use of Mandatory Arbitration, April 6, 2018.
Child sexual abuse cases.
While a few states have opened the courthouse to these claims, most states still have extremely restrictive laws that block access to the courts for most survivors. But even when legitimate claims are allowed to go forward, the insurance industry often will not cover them. Marci A. Hamilton, “Insurance Carriers Hold a Key to Prevent Child Sex Abuse,” Verdict, April 25, 2019; Center for Justice & Democracy, “State Tort Limits In Sexual Assault Cases; Caps and Statutes of Limitations,” February 14, 2019.
Litigation finance companies.
While arguing that third party litigation funding “fuels frivolous litigation,” empirical research shows the exact opposite to be true (i.e., these companies screen out meritless cases). Even business attorneys have written that “linking litigation funding to social inflation exposes the specious nature of the social inflation theory itself.” James H. Gordon and Michael E. Bonner, Ansa Assuncao LLP, “The Self-Fulfilling Prophecy of Social Inflation,” Lexology, February 5, 2020; Ronen Avraham and Anthony Sebok, “An Empirical Investigation of Third Party Consumer Litigant Funding,” 104 Cornell L. Rev. 1133 (2019).
Verdicts for catastrophically-injured people hurt in big-rig truck crashes.
Of the nearly 5,000 people killed in large truck crashes each year, 82 percent of those victims are not large-truck occupants but rather motorists forced to share the road with massive 80,000-pound trucks. Crashes are often caused by trucks speeding or truck driver fatigue. Truck underride crashes, where the car slides under the truck, are a huge problem. In other words, truck crashes can cause catastrophic damage. Richard Lardner, “Administration moves to ease drive-time rules for truckers,” Associated Press, July 1, 2019; Federal Motor Carrier Safety Administration, Large Truck and Bus Crash Facts 2017 (May 2019); U.S. Government Accountability Office, Truck Underride Guards: Improved Data Collection, Inspections, and Research Needed (March 2019).
Yet federal law only requires $750,000 insurance coverage for trucks, a minimum that hasn’t been increased in decades, which means that many victims are undercompensated. National Highway Transportation Safety Administration, 2018 Fatal Motor Vehicle Crashes: Overview (October 2019); Rob Low, “Trucking company involved in I-70 crash only carries $750,000 of liability insurance,” Fox 31 Denver, April 30, 2019.
The 2008 financial crisis, now causing jurors to treat corporations unfairly.
While alleging that a crisis that occurred over a decade ago is causing today’s jurors to treat corporations unfairly, neither jury nor data paid loss data show any such trend. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020); Center for Justice & Democracy, Tort Litigation – By The Numbers (2016).
Millennials on juries suddenly rendering unfair verdicts.
Millennials have been serving on juries since 1999, including during the entire soft market that spanned the years 2006 through 2019, which was characterized by stable insurance rates. This was not an issue until the industry needed to justify rate hikes in 2019. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020).
Cases brought by defrauded shareholders against public companies.
Before the pandemic began, the frequency of these cases had been flat for the prior three years, and in 2019, the average settlement value dropped to the lowest in a decade. Since the start of the pandemic, class action securities filings dropped 22%. Judy Greenwald, “New class action securities cases down 22% in 2020,” Business Insurance, February 3, 2021; NERA Economic Consulting press release “Trends in 2019 Securities Class Actions,” January 21, 2020.
Juries numb to money because of celebrity and athlete salaries.
Neither jury nor data paid loss data show any such trend. J. Robert Hunter, Joanne Doroshow and Douglas Heller, How the Cash Rich Insurance Industry Fakes Crises and Invents Social Inflation (March 2020); Center for Justice & Democracy, Tort Litigation – By The Numbers (2016).
(Return to main brochure)