Premiums Are Rising, and Insurers Say Lawsuits Are to Blame
“Social inflation” is the term they use to describe what they see as abuse of the legal system. Advocates say there’s little evidence of a connection.
Insurance companies invoke a litany of reasons for raising premiums. Inflation has been a big one since prices took off in 2021. There’s a rise in car accidents involving drivers distracted by their phones. Climate change has fueled an increase in natural disasters destroying homes. Fraudulent claims are a perennial. And these days, a new justification is taking the spotlight: social inflation, a term that generally refers to rising legal costs.
Industry groups say there’s been rampant abuse of the legal system, with lawyers and profit-seeking outsiders spurring a rise in increasingly costly lawsuits. Social inflation came up on insurers’ earnings calls about 130 times in the past year—and more than 550 times from 2020 to ’23, compared with fewer than 80 in the previous four-year period. Leaders of giants such as American Financial Group, Hartford Financial Services Group and Travelers have all indicated that lawsuits have factored into decisions to boost rates. It’s the “reality of our society today, right? Social inflation, legal system abuse, however you want to call it,” Hartford Chief Executive Officer Christopher Swift said on a conference call in February.