What Is the Evidence for Social Inflation?

"Social inflation is a term that has been used to describe social and behavioral trends that are said to expand the liability of parties allegedly responsible for harms and their insurers. Insurers and others have argued that social inflation creates a feedback loop in which rising levels of tort compensation fuel expectations of financial windfalls among potential claimants and the attorneys who represent them, which in turn stimulates the filing of new claims and associated lawsuits. Other observers take a different view, arguing that social inflation is a positive development, better enabling injured parties to receive the compensation that they deserve. Still others question whether social inflation is occurring at all. Although there is a great deal of discussion and debate regarding social inflation and its purported causes, there is not a great deal of empirical research on whether social inflation is actually occurring. In this report, the authors look for trends in litigation rates, trial awards, and insurance claim payments that are consistent with the expected effects of social inflation. Increases in trial awards and insurance claim severity net of economic inflation would be suggestive of social inflation but would not necessarily provide conclusive evidence. The difference between the growth rates in trial awards or claim severity and economic inflation could be due to social inflation, as well as factors external to the civil justice system"--