Perspective | Let’s Be Honest, Social Inflation Is Just Greed by Another Name

By: | May 26, 2020

Roger Crombie is a United Kingdom-based columnist for Risk & Insurance®. He can be reached at [email protected]

Tottenham Hotspur is the only football (i.e. soccer) team I have ever supported. Decades of watching them, in the stands and on TV, have given me a deep understanding of the game, but one aspect eludes me completely.

It’s the chanting. The fans of every team invent their own songs. As many as 40,000 people might belt them out in unison, often to a tune that everyone knows. The chants are mostly sarcastic or sardonic. Some are crude beyond belief, which is part of what makes them such fun to sing along to. I’d cite a few right now, only … you know, editors, the police, etc.

New chants appear quite often, and somehow all the fans know all the words and exactly how to sing them, all the way through. How is that possible? Who makes up these morally depraved sing-alongs and then teaches them to 40,000 ne’er-do-wells?

The same question applies to jokes. Who invents a joke? Who is joker zero?

Case in point: In the 2000s, when reinsurance companies began forming specific-purpose subsidiaries that they owned, but which operated independently, I referred to them as “sidebars.” I hoped everyone would.

I was one letter off. Someone else dubbed them sidecars, and it stuck. No one has ever taken the credit, but he or she must have had a wider audience than the 11 people in Bermuda who read my work at the time.

All this is prompted by the arrival of what’s called social inflation, a phenomenon that is starting to have a serious effect on the insurance industry’s bottom line.

Social inflation is the term used by insurers to describe the rising costs of claims resulting from increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions and higher compensatory jury awards. New concepts of tort and negligence, legislated rises in compensation benefit levels, and such technical legal matters as litigation funding are also in the mix.

Social inflation has been going on for quite some time, especially in the U.S., but has assumed threatening proportions in the last year or two. Generalized anti-corporate feelings, allied to a popular misunderstanding of how companies’ function, and widening income inequality are all partly to blame.

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Plus, we no longer believe in personal responsibility. Stubbed your toe on a table leg? Sue the manufacturer; win millions!

Social inflation has been concentrated in commercial auto, medical malpractice, D&O and umbrella and excess liability, particularly policies for large corporate risks, where the largest limits are found.

The effects of social inflation are hard to forecast with accuracy, making underwriting and pricing risk a challenge, but you knew that, so here’s my point: Social inflation is exactly the wrong term to describe what’s going on. All its elements are anti-social. Every one of them is based in unfettered greed.

The same misnomer applies to “social media.” Ignore everyone else, stare at a screen, and if you don’t like something, type the vilest thing you can imagine. How is that social?

People’s greed is damaging insurance companies, which many think of as greed incarnate. Pots and kettles, reader, pots and kettles. &

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