How Social Inflation Affects Insurance

It is something that has been around for quite some time. But Social Inflation has become more relevant to all businesses as claims costs increase, to one degree or another, in all jurisdictions. Nowhere is this more evident and established than in the United States, where, prior to the pandemic, the median cost of large verdicts had almost doubled in a 5-year period. 

What is ‘Social Inflation’?

Social inflation is one of the latest buzzwords in insurance. It is used by insurers to describe the rising costs of insurance claims resulting from things like increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions, and larger compensatory jury awards. While the core components driving social inflation have been evident for some time, their impacts on the insurance industry have only really started to come to a head in the past couple of years.

Social Inflation in Australia

The primary causes of social inflation in Australia stem from litigation funding and legislative changes. One example of a legislative change impacting claims cost in Australia, and the most apparent example of associated social inflation, is the removal, in all Australian jurisdictions, of limitation periods in respect of child sexual abuse. Additionally, most jurisdictions have broadened the definition of the type of abuse in respect of which limitation periods no longer apply. This has served to significantly increase the potential cost of claims for business or institutions with historical exposure to claims of that nature.

Litigation funding has been a game-changer in Australia 

Litigation funding has been a game-changer in Australia and is starting to make its mark globally. First gaining prominence in securities class actions, recent changes to continuous disclosure obligations have made it more difficult to bring an action on behalf of shareholders. With that, litigation funders and plaintiff firms are expanding their remit to other mass tort litigation, which has serious implications for businesses and their general liability insurers. It is a landscape that continues to evolve. So, what’s next? As the tactics used by plaintiff firms become more familiar to businesses and their lawyers, defense strategies will evolve to counter the impacts of social inflation. The courts’ view of these tactics might also change – or not. What is important though, is that businesses understand the nuances of each jurisdiction in which they trade and have the comfort of a robust insurance program to protect them. 

Tego Insurance wants you to understand why social inflation is increasing the costs of claims

We are Australian medical indemnity insurance providers and cover your practice with medical indemnity insurance, medical malpractice insurance, doctors indemnity insurance, gp medical indemnity insurance,, medical practice insurance, and more. If you are a health practitioner with Tego, we offer 24/7 medico-legal advice and support in regards to what you need to know about the costs of claims.

This publication is general in nature and is not comprehensive or constitutes legal or medical advice. You should seek legal, medical or other professional advice before relying on any content, and practice proper clinical decision making with regard to individual circumstances. Persons implementing any recommendations contained in this publication must exercise their own independent skill or judgment or seek appropriate professional advice relevant to their own particular practice. Compliance with any recommendations will not in any way guarantee discharge of the duty of care owed to patients and others coming into contact with the health professional or practice. Tego Insurance Pty Ltd is not responsible to you or anyone else for any loss suffered in connection with the use of this information. All content on this page has been written in a generic way, and has not been presented with any knowledge of your personal objectives or financial needs.