This article was produced in partnership with Amwins Group.
Gia Snape of Insurance Business America sat down with Jason Kunert, head of claims at Amwins Group, to discuss claims inflation, the factors that continue to drive this phenomenon, and the implications for brokers and their insureds.
Claims inflation has been a silent force shaping the insurance landscape over the past decade. The rise of claims costs over time can be attributed to several factors, including economic trends and societal shifts.
At least one claims expert believes the trend will continue in the casualty space as insurers pay out ever-growing settlement values.
"It's been a gradual climb over the past decade or so,” said Jason Kunert (pictured), head of claims at Amwins Group. “I think that it will get worse before it gets better.”
This inflationary pressure has been felt across various sectors of insurance, leading carriers to increase premiums and restrict coverage limits. The rising number of outsized jury awards, often in excess of $10 million, is a particular source of concern, according to Kunert.
Kunert, a veteran with over 30 years of insurance experience, said he had observed the steady rise in claims costs since the early 2010s. But nothing prepared him for the explosion of settlement values in the past few years.
“What caught our attention was the acceleration we've witnessed since the onset of the COVID-19 pandemic,” he said. “It is outpacing regular economic inflation.”
What exactly is driving this escalation in settlement values? One factor is court backlogs during the pandemic, which led to changes in plaintiff tactics and social inflation.
Social inflation describes jurors' changing attitudes and perceptions amid greater social awareness and shifts in public perception of corporate responsibility. Jurors may be more inclined to hold companies accountable for perceived wrongs, resulting in more significant verdicts and increased financial exposure for insurers.
The pandemic also served as a catalyst, exacerbating these trends and introducing new challenges to the claims landscape. While courts were shut down and cases piled up, insurers and their clients were forced to adapt to a new reality.
"As the courts began to reopen, we saw a surge in aberration verdicts,” Kunert said. These jury awards, often reaching eight figures, pose significant challenges for insurers and their clients.
According to Kunert, aberration verdicts are concerning not only because of the astronomical sums awarded but also because of the ripple effect they create. Verdicts in one jurisdiction can set a precedent that reverberates across the industry.
Additionally, advocacy groups and legal activists may push for policy changes or legal reforms that favor plaintiffs, leading to broader interpretations of liability and expanded legal remedies. This can contribute to an environment where insurers face higher litigation costs and larger payouts.
“This has huge implications for carriers and policyholders,” he said. “Though all those outcomes are priced into the business, the cost is passed along to all of us as consumers.”
Social inflation is just one piece of the puzzle. Kunert also highlighted the role of legal trends and judicial attitudes driving the prevalence of outsized jury awards.
"Certain jurisdictions have gained a reputation for being particularly plaintiff-friendly," Kunert told Insurance Business. "These so-called 'judicial hellholes' can pose significant challenges for insurers, as verdicts rendered in these jurisdictions tend to be larger and more unpredictable."
Jurisdictions like Philadelphia, Georgia and Missouri have become hotspots for high-stakes litigation, with plaintiffs flocking to file their cases in search of sizable payouts.
The escalation of settlement values has impacted insurance premiums and coverage terms. Carriers have responded by adjusting pricing and terms and conditions, such as implementing exclusions or sub-limits for certain risks.
“We're seeing exclusions and sub-limits for risks that were once considered standard,” said Kunert. “It's an expected response to the escalating risk environment.”
For insureds, navigating these changes requires a keen understanding of the jurisdictional nuances and a proactive approach to risk management.
According to Kunert, brokers play a crucial role in this process. Strategies like studying crime grids, understanding loss history, and ongoing consumer education will be vital to mitigating the impact of claims inflation on policyholders.
Looking ahead, Kunert remained cautiously optimistic about claims inflation. He said government action may be necessary to drive change.
"Tort reform is the elephant in the room,” he said. “Until we address the underlying issues driving these trends, we'll continue to see an escalation in settlement values."
Despite the challenges, Kunert believes there are opportunities for innovation and collaboration within the industry.
"It’s an insurer’s job to pay claims as quickly as possible," he said. "By evaluating cases swiftly and fairly, we can help mitigate unnecessary litigation and provide better outcomes for all parties involved.
"It's a challenging landscape, no doubt. But it's also incredibly rewarding to be at the forefront of change, shaping the future of our industry."
What are your thoughts on claims inflation? Do you agree with Kunert’s assessment? Please share your comments below.
