Social Inflation remains a constant problem for Insurers; even more so when softer markets start to appear – as seems to be the case in some areas of our market.

What is social inflation? It’s a term used by insurers to describe the rise in claims costs resulting from things over and above the usual economic inflation, eg increased litigation, broader definitions of liability and more claimant-friendly legal decisions.

In the professional indemnity space, social inflation is exacerbated through claimants having easier access to funding for their litigation via financial organisations, a growing distrust of large corporations generally, and increasing damages awards which are also potentially driven by social pressures on judges to reflect that distrust.

If current doom-laden assessments of the state of our economy are correct, we could easily find ourselves in the kind of economic cycle where businesses seek to blame professionals to deflect poor performance.

All these factors sit alongside the effects of Covid business interruption claims, the proliferation of cyber claims the effects of the war in Ukraine and the increasing challenges of ESG responsibilities for corporations.

How can lawyers help insurers manage such claim pressures?

Firstly, on the wider perspective. If lawyers and insurers work collaboratively to gather the best, most relevant data and MI, they can come together to respond as quickly as possible both to manage claims and claim trends and to tackle widespread issues such as fraud.

One size does not fit all, it’s the responsibility of the lawyers to understand the business needs of their insurer clients to ensure the best possible outcomes.

Secondly, taking a closer look at the claims approach, we can look to:

  • Take advantage of procedure wherever possible to press home settlements, eg in what will undoubtedly become mandatory mediation
  • Use the Fixed Recoverable Costs regime to best advantage to reduce claimant costs and maximise settlement efficiency
  • Ensure constant vigilance on defence costs by effective budgeting against incurred wip/costs
  • Constantly refine, with insurers, our ability to assess the sweet spot for settlement of claims

Innovative lawyers will inevitably ensure the most successful outcomes. A focus on the best use of IT, particularly in the claims process and maximising the benefits offered by AI, including during the disclosure process and when dealing with documents, is already key, and that need will increase.

Social Inflation