SOCIAL INFLATION AND NUCLEAR VERDICTS ON THE RISE AND THEIR IMPACT ON YOUR AUTO INSURANCE

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Social Inflation & Nuclear Verdicts on the Rise and Their Impact on Your Auto Insurance

As a father of two daughters, the phrase “social inflation costs” immediately brings to my mind images of pricey prom dresses, wedding dresses, and baby gender announcement party costs! We are not talking about this kind of “social inflation” but costs that are significantly more sinister and significant to the bottom line of your business.

The social inflation we are referring to represents the exponentially inflating costs of automobile insurance claims caused by runaway jury verdicts. In a recent study by the Insurance Information Institute and the Casualty Actuarial Society, social inflation has increased automobile claims costs by over $20,000,000,000.

That’s $20 BILLION dollars! Over a ten-year timespan, these ever-increasing costs have had a significant impact on the financial results of the underwriters of automobile insurance in the US.

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What is a nuclear verdict?

A nuclear verdict is when a jury awards the prosecution a penalty exceeding $10 million. Why is this important? Well, quoting from Zywave’s 2022 Market Outlook: “According to recent Advisen loss data, the percentage of trucking awards exceeding $10 million jumped 15% over the past four years. These large losses accounted for 35% of all trucking losses over $1 million from 2017 to 2021. This is a notable increase from the previous eight years when trucking awards over $10 million accounted for just 20% of losses over $1 million. Due to the rise in nuclear verdicts, attorneys are more inclined to go to trial. This extends litigation and significantly raises the cost to defend a claim.”

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A nuclear verdict is when a jury awards the prosecution a penalty exceeding $10 million. Why is this important? Well, quoting from Zywave’s 2022 Market Outlook: “According to recent Advisen loss data, the percentage of trucking awards exceeding $10 million jumped 15% over the past four years. These large losses accounted for 35% of all trucking losses over $1 million from 2017 to 2021. This is a notable increase from the previous eight years when trucking awards over $10 million accounted for just 20% of losses over $1 million. Due to the rise in nuclear verdicts, attorneys are more inclined to go to trial. This extends litigation and significantly raises the cost to defend a claim.”

2022 Price Prediction

If you have been impacted by these out-of-control price increases, then it is time to do something about it! Whether you have questions about social inflation and why your automobile insurance premium is climbing, or if you have any other insurance or risk assessment needs, reach out to our risk advisors at Tower Street Insurance today.

Ryan Weaver

Updated: 03/17/2022

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