The global liability insurance landscape is undergoing seismic shifts, driven by increasing trends in social inflation, particularly in the United States.
Social inflation refers to the rising costs of insurance claims due to factors like litigation funding, plaintiff-friendly legal environments, and large jury awards, often termed “nuclear verdicts.”
While this phenomenon has been predominantly a US issue, emerging trends in other regions, such as Europe, signal that its effects could transcend borders and have implications for insurers.
“Collective actions are already becoming more prevalent in some European countries, as consumer groups start using collective redress frameworks and legislative change to chastise companies and fund remedial work, while consumer protection agencies have already brought claims in areas like water quality and pharma,” said Arne Holzheuer (pictured below), a global practice group head for liability in the chief claims office at Allianz Commercial.
Holzheuer noted a record number of class actions were filed in Europe last year (133), up 10% from 2022, with the UK, Netherlands, Germany, and Portugal accounting for over three-quarters of these. Product liability, consumer, and personal injury were the largest sources of litigation.
In the US, social inflation has been fuelled by a confluence of legal, social, and economic factors. US juries have handed down a record number of supersized verdicts in recent years, with “nuclear” verdicts (larger than US$10 million) tripling since 2020, a new liability trends report by Allianz Commercial reported.
In 2023 alone, Allianz Commercial said these verdicts grew by 27%, and so-called “thermonuclear” verdicts (larger than US$100 million) rose by 35%. The median verdict value has more than doubled during the same period.
Several factors are spurring the increase of verdicts greater than US$100 million, which are swelling liability costs across industries, from automotive to chemicals, and influencing global insurers’ capacity deployment and profitability assessments.
The most significant drivers are the erosion of tort reform, the evolution of plaintiff attorney strategies, and jury demographics and social awareness.
Caps on non-economic damages have faced significant constitutional challenges, with several states overturning such caps based on arguments around equal protection and jury trial rights.
Joerg Ahrens (pictured below), global head of key case management, long tail claims at Allianz Commercial, said attempts at tort reform, such as caps on non-economic damages, have met with varying levels of success.
“In the absence of more effective reform, greater cooperation between insureds and insurers, including adopting a robust defence in cases and a tougher stance to settlements are needed to mitigate the spiralling cost of liability claims,” Ahrens said.
At the same time, plaintiff lawyers are employing advanced tactics, leveraging public mistrust of corporations and utilizing emotional appeals to secure higher compensatory and punitive damages. This, combined with younger, more diverse jury pools that often sympathize with plaintiffs over corporations, has contributed to the normalization of high-value awards.
In Europe, some factors driving increased collective actions include:
The pharmaceutical and chemical industries are also particularly vulnerable to social inflation due to their exposure to complex liability claims. Class actions involving “forever chemicals” and adverse pharmaceutical outcomes are on the rise in the US and Europe, according to Allianz Commercial.
In its report, the insurer pointed to a growing list of pharma, food, and chemical products becoming the target of billion-dollar class action litigation, including opioids, talcum powder, indigestion remedies, and herbicide. Cancer is increasingly a feature of such cases, with scientific research, regulatory orders or voluntary withdrawal of products that may be carcinogenic as triggers.
Such claims create volatility for liability insurance due to the long latency of cancer symptoms, with risks only understood many years after a product was sold, and the insurance underwritten.
According to Holzheuer, organizing a proper defence is key to mitigating the effects of social inflation.
“It’s important to use specialist law firms and have the right people and expertise at both a local and global level,” he said. “As the plaintiff industry continues to grow, insurers and customers must ensure they have good connections and communication, and a sense of ownership of these claims on both sides.
“Mitigating the effects of social inflation may also require insurers to invest more in their claims capabilities, from talent to data analytics, to put up the most effective and consistent defense possible.”
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