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The State of Social Inflation: Costs, Causes & Potential Solutions


  • The Insurance Information Institute says social inflation contributed to a $30 billion increase in commercial auto liability claims between 2012 and 2021.
  • The global litigation funding market is expected to grow from $12.2 billion in 2021 to $25.8 billion in 2030.

While economic inflation gets a lot of press, social inflation also impacts the insurance industry’s profitability.

The Insurance Information Institute1 says social inflation contributed to a $30 billion increase in commercial auto liability claims between 2012 and 2021.

Commercial auto insurance isn’t the only sector to feel the impact of social inflation. Other liability lines – including medical malpractice liability – have also been affected. A study from The Doctors Co.2 found that 8% to 11% of all medical malpractice losses between 2011 and 2021 stemmed from social inflation. That amounts to $2.4 to $3.5 billion.

Insurers are currently struggling to achieve underwriting profitability. According to the Insurance Information Institute4, the property and casualty industry had an estimated combined ratio of 105.8 for 2022. This is 6.3 points worse than 2021 and indicates an underwriting loss. Social inflation is not the only cause – economic inflation and evolving risks are also key contributors. However, social inflation is adding to the insurance industry’s problems.

Social inflation refers to an unexpected rise in insurance claim costs due to societal trends and views toward litigation. When claims cost more, insurers struggle to maintain underwriting profitability. Ultimately, costs are passed on to policyholders. Source: IRMI3

Policyholders end up paying the price. According to MarketScout5, the composite rate for U.S. commercial insurance rates has increased for six years in a row. Enormous sums also make it impossible for policyholders to determine whether they have enough coverage. A $10 million liability limit may seem reasonable for some companies, but it’s insufficient when juries are handing out $1 billion verdicts.

What Causes Social Inflation?

Social inflation has multiple causes.

Sometimes, juries award massive verdicts as a way of punishing companies they see as behaving with a reckless disregard for the individual. Thomas Reuters6 explains that lawyers may use strategies rooted in “reptile theory” to convince juries that the defendant poses a danger and that they must take steps to mitigate the danger for others.

Reptile theory is a strategy, typically used by the plaintiffs' bar, to influence a jury outcome by focusing the jury's reaction to instinctively favor safety and survival of their families and community (versus plaintiff's actual injuries) by demonstrating the defendant's conduct endangers their families and community as a whole. Source: IRMI7

In one example of a massive jury award, Freight Waves8 says a Florida jury issued a $1 billion verdict against two trucking companies in connection to a fatal crash. Although it seems likely that the plaintiff will never collect any money from one of the companies involved (it had apparently gone out of business prior to the verdict), the jaw-dropping sum still sets a worrisome precedent for both the trucking and the insurance industry.

Third-party litigation funding is another social inflation driver, in which a third party provides financing for legal representation in exchange for a percentage of the settlement or award. According to the U.S. Chamber of Commerce Institute for Legal Reform9, third-party litigation funding is “a multibillion-dollar global industry that is turning our courtrooms into casinos.”

Custom Market Insights says the global litigation funding market is expected to grow from $12.2 billion in 2021 to $25.8 billion in 2030.10

The Insurance Information Institute11 says third-party litigation funding can draw out litigation and lead to higher costs. In addition, secrecy around third-party litigation funding can raise questions of fairness and ethics. Swiss Re12 has linked the rise of third-party litigation to the increase in large claims.

What Can the Insurance Industry Do?

If social inflation is the problem, what’s the solution? As this Bloomberg Law article explains13, some are calling for increased transparency in third-party litigation funding. Federal courts do not require plaintiffs to disclose when they use third-party litigation funding, but disclosure could support pre-trial resolutions, just as the disclosure of insurance can aid settlement discussions.

The Insurance Information Institute14 has several other recommendations, including:

  • The use of corporate social responsibility initiatives to improve public sentiment
  • Better risk management and corporate governance
  • Constraints to control exploitative attorney advertising

While these are all good recommendations, they take time. One strategy that requires less time avoiding litigation in the first place by facilitating a more customer-centric claims process. Some lawsuits are unavoidable, but a percentage of claims escalate into litigation when a claimant become frustrated with the pace, transparency or communication involved with the process.

By settling claims faster, insurers may be able to improve customer satisfaction and public sentiment while avoiding some potential litigation. 

Are You Ready?

The upcoming year promises to be both busy and challenging. It will be important for insurers to not only build upon momentum achieved but continue to innovate and grow. The road ahead has obstacles to navigate and If you don’t have strong digital payments capabilities, you’re not ready for 2023 and beyond. At One Inc we provide seamless digital payment experiences that accelerate claim payment cycle times to help reduce litigation opportunities. We understand the power of partnerships and the value of a strong ecosystem. And as the leading digital payments network for the insurance industry, we’re here to help.  Get in touch.


  1. https://www.iii.org/insuranceindustryblog/latest-research-on-social-inflation-in-commercial-auto-liability-reveal-a-30bn-increase-in-claims/
  2. https://www.businessinsurance.com/article/20230123/NEWS06/912355045/Social-inflation-increases-med-mal-losses-Study
  3. https://www.irmi.com/term/insurance-definitions/social-inflation
  4. https://www.iii.org/insuranceindustryblog/category/industry-financials/
  5. https://marketscout.com/us-commercial-lines-insurance-composite-rate-increases-5-1-in-fourth-quarter-2022/
  6. https://legal.thomsonreuters.com/blog/what-attorneys-need-to-know-about-reptile-theory/
  7. https://www.irmi.com/term/insurance-definitions/reptile-theory-or-strategy
  8. https://www.freightwaves.com/news/jury-hands-down-billion-dollar-verdict-in-florida-against-2-trucking-companies
  9. https://instituteforlegalreform.com/blog/what-is-third-party-litigation-funding/
  10. https://www.globenewswire.com/en/news-release/2022/08/29/2506137/0/en/Global-Litigation-Funding-Investment-Market-Size-Worth-25-8-Billion-by-2030-at-a-9-CAGR-Custom-Market-Insights.html
  11. https://www.iii.org/sites/default/files/docs/pdf/triple_i_third_party_litigation_wp_07272022.pdf
  12. https://www.swissre.com/dam/jcr:7435a896-5f4b-463b-a1e6-7d4ec17db556/swiss-re-institute-expertise-publication-us-litigation-funding-and-social-inflation-december2021.pdf
  13. https://news.bloomberglaw.com/us-law-week/why-third-party-litigation-funding-should-be-more-transparent
  14. https://www.iii.org/article/what-can-we-do-about-social-inflation


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The One Inc Content Team strives to provide valuable insights about digital trends and payments innovation for the insurance community.

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