How much could one accident cost a company? If a sum of $90 million sounds farfetched, keep reading. According to Freightwaves, a $90 million verdict against Werner Enterprises may be the biggest award in trucking history, but it’s also part of a trend of rising settlements.
This trend is called social inflation, and it happens when juries reach larger and larger verdicts to punish companies for perceived wrongdoing. It’s having a big impact on underwriting, and both insurers and insureds should be paying attention.
Accounting for Social Inflation
Before you underwrite a policy, you must determine the level of risk involved. One key consideration is potential loss severity. With social inflation, severity is difficult to predict. The result is higher rates and lower capacities.
- Higher Rates. According to the Insurance Journal, the Marsh Index found that average commercial insurance prices rose 19% in the second quarter of 2020. While the COVID-19 pandemic may be contributing to this increase, it’s important to note that prices also rose 14% in the first quarter of 2020 and 11% in the fourth quarter of 2019. Other factors, including social inflation, appear to be impacting the trend.
- Lower Capacities. Across the board, insurers are becoming more risk adverse. This means more scrutiny, lower limits, or more non-renewals.
What Can Carriers Do?
Social inflation impacts both insurance companies and their policyholders. It’s in everyone’s best interest to work together to manage the situation.
Here’s what insurance professionals can do:
- Proactively communicate with agents and policyholders. Policyholders never appreciate rate increases, but if they understand the trends, and have time to prepare, they may be more understanding.
- Help your clients prevent claims. Provide tips on loss prevention strategies – from hiring and safety training to day-to-day policies and claims containment procedures.
- Embrace tech. New technology, such as telematics, can help companies take control of their risk. Encourage your clients to adopt useful technology.
- Take social justice seriously. Modern juries reflect modern opinions. If a jury views a company as being callous or careless, this may impact the verdict. It’s important to take public relations – both before and after a claim – seriously. Advise your clients and make sure they have a solid response plan in case there’s an incident.
If you need assistance with risk verification, policyholder communication or any other activity that helps you proactively manage social inflation, contact Covenir. Our experienced, onshore team is here to help you succeed.