Social shifts and inflation shake up claims landscape

Recent societal changes are reshaping insurance claims—and the impact is especially pronounced in workers’ compensation, commercial auto, and liability lines.

That was the message from a discussion panel taking place at the Vermont Captive Insurance Association conference, taking place in Burlington, Vermont, this week. 

The session, titled “Unpacking the Impact of Covid, Inflation, and Social Trends,” featured industry experts Maigh Wright, vice president - actuarial consultant of Marsh Captive Solutions; consulting actuary Katie Pipkorn from Milliman; and Sara Schroeder, managing general counsel at Allied Professionals Insurance.

Wright opened the discussion by highlighting how workers’ compensation losses have shown a steady decline over the past decade. Utilising Schedule P data from insurance company filings, she explained that the actuaries’ estimates of ultimate losses—covering paid losses, case reserves, and incurred-but-not-reported (IBNR) reserves—have consistently reduced. This decline aligns with enhanced medical cost containment, fewer claims, and improved risk management strategies within the sector.

However, the picture contrasts starkly with commercial auto insurance, where loss estimates have been rising. Wright pointed out a significant spike in claims corresponding with the Covid-19 pandemic, followed by a continuing upward trend driven largely by social inflation and broader economic inflation pressures.

Pipkorn expanded on the commercial auto sector’s challenges, sharing loss ratio data that reveals a disturbing pattern of worsening claims from accident years 2016 through 2019. These years have been marked by growing ultimate loss ratios, as actuaries revise estimates upward each year. Pipkorn warned that many actuarial methods remain backward-looking, potentially underestimating the current severity of claims in 2021 and beyond.

The rise in large verdicts—sometimes called “nuclear verdicts”—has also contributed to this trend. For example, hospital professional liability claims over $10 million have increased dramatically over the last decade, with the proportion of such large claims growing more than fourfold since 2009–2013. Moreover, the average time to close claims has extended, adding further costs.

The panel also delved into inflation’s role in driving claims costs. Pipkorn distinguished between flexible inflation—prices that change rapidly with market demand, such as fuel—and sticky inflation, which affects goods and services with wage-heavy or regulatory cost components, like healthcare and auto repair.

Using Federal Reserve data, she illustrated that while flexible inflation surged sharply around 2022 and has since eased, sticky inflation remains persistently elevated. This phenomenon means that insurance lines sensitive to wage and labour costs may continue facing upward pressure even as headline inflation falls.

Schroeder then took the stage to unpack the concept of social inflation—where claims costs increase beyond general economic inflation due to societal shifts in attitudes about responsibility and risk.

She highlighted the evolving composition of jury pools, noting that younger jurors from Generation Z are serving in larger numbers, bringing more polarised views on social justice, corporate accountability, and legal redress. Trust in institutions, courts, and corporations has declined significantly post-pandemic, with a greater proportion of jurors favouring plaintiffs in lawsuits against large companies.

Schroeder cited research showing a sharp rise in jurors’ willingness to use punitive damages as a form of social punishment, and their inclination to deliver verdicts that send strong messages to corporations to improve behaviour. These factors have contributed to extraordinary verdicts, such as a $462 million punitive damages award in a fatal highway crash case in St Louis in 2024.

Judicial trends have also shifted in plaintiffs’ favour, with states increasing caps on damages and limiting defendants’ ability to introduce evidence that might mitigate liability—such as seat belt usage or blood alcohol levels in accident cases.

Schroeder emphasised the importance for insurers and risk managers to recognise these societal and legal shifts, which could have lasting impacts on claim severity and frequency.

The session underscored that while the industry continues to grapple with the aftershocks of Covid and inflation, the deeper undercurrents of social inflation and changing public attitudes are reshaping the claims landscape in profound ways. Understanding these forces is critical for insurers, actuaries, and corporate risk managers aiming to anticipate and mitigate future exposures.

As Wright, Pipkorn, and Schroeder agreed, the era of “business as usual” is over. Success in this environment will depend on adapting to evolving claims patterns, inflation realities, and the social context that increasingly influences litigation and insurance outcomes.

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