Increases in Trial Awards, Claims Severity Add to Evidence of Social Inflation: RAND

RAND research of 2010-2019 data suggests social inflation may be on the rise, but says further investigation is needed to confirm the trend is not caused by other factors.
By: | July 10, 2024
social inflation in the courts

Increased litigation rates, trial awards, and insurance claim payments during the 2010s provide evidence consistent with an upsurge in social inflation, according to new research by RAND Corp.

The term “social inflation” describes social and behavioral trends that expand tort liability and the cost of claims on liability insurance policies, according to the report.

“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,” the report states. RAND noted that despite widespread discussion and debate about social inflation and its causes, there is relatively little empirical research on whether it is actually occurring, or if some other factor is to blame.

Based on its analysis of jury verdict and insurance claims data between 2010 and 2019, the RAND report outlined several key findings:

Court filings increased: The annual number of new court filings per capita increased about 10% between 2012 and 2019 in 19 states, according to the report. While further research is needed to understand the factors behind this increase, the rise in case filings suggests that social inflation may be at play, RAND observed.

More plaintiff wins: The number of cases that reached a verdict in which the plaintiff won saw a significant increase, rising to 64% in 2019 from 53% in 2010. This trend aligns with the narrative about the potential effects of social inflation, although other factors, such as changes in case reporting or defendants making low settlement offers, could also contribute to the observed increase, the report noted.

Trial awards increased: Inflation-adjusted trial awards in personal injury/wrongful death (PI/WD) cases grew at a compound annual growth rate of 7.6% between 2010 and 2019, after controlling for case characteristics.

The percentage of awards that were at least $5 million also increased during this period, reaching just under 12% of awards by 2019, from approximately 7% of awards in 2010.

An uptick in the percentage of trial awards with alleged brain injuries contributed modestly to the growth in awards, the research found, highlighting the potential impact of changing injury patterns on overall compensation trends.

Bodily injury (BI) claims severity up: The inflation-adjusted severity of bodily injury insurance claims rose at approximately 2.7% annually between 2010 and 2019 for claims under certain commercial liability and personal auto policies, the research found. For both BI claims and PI/WD cases, there was little growth between 2010 and 2013 and faster growth from 2014 through 2019, the report noted.

“This finding provides some initial evidence that the increase in claim severity is driven at least in part by social inflation,” the report’s authors stated.

Also, the research found that in some market segments, claim severity increased more rapidly for policies with higher limits, but RAND noted this could be interpreted in different ways.

“On the one hand, it could indicate that social inflation affects higher-limit policies and the larger firms that typically hold them to a greater degree than lower-limit policies. On the other hand, it
could suggest that social inflation affects policies with all limits equally but that increasingly binding limits reduce the growth rate that is observed for lower-limit policies,” the report’s authors said.

According to the report, insurance claim frequency fell for most market segments between 2001 and 2019, nearly offsetting the increase in severity over that period. This decline in frequency suggests that while the likelihood of an injured party seeking compensation or filing an insurance claim may be increasing, the overall number of claims could be declining if the underlying injury rate is falling, which the report said could be potentially due to increased safety regulations or improved safety practices induced by rising liability costs.

RAND concluded that while the research provided evidence consistent with an upsurge in social inflation during the 2010s, further work is needed to isolate social inflation from other factors that could be causing an increase in trial award sizes and claims severity.

For example, the report’s authors said, “Further investigation of how best to control for changes in medical practice patterns and the price and quality of vehicle replacement parts would provide more confidence on the extent to which increases in trial awards and claim severity are caused by social inflation or to factors external to the tort system.”

Determining if social inflation is good or bad depends on understanding the factors driving it and whether they serve broader social goals, according to RAND. For example, an increase in trial awards due to jurors ignoring the law or insurance contract language could be viewed as a negative driver of social inflation. On the other hand, the elimination of a cap on noneconomic damages by legislative action might be considered a positive driver consistent with broader public will, the report stated.

View the full report on RAND’s website. &

The R&I Editorial Team can be reached at [email protected].

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