Understanding and Coping with the “New Normal” in Insurance Inflation

Much of the recent years’ unexpected increases in loss costs has been attributed to “social inflation,” though many social and economic factors have also contributed to rising claims costs. This paper will begin with a definition of social inflation and then delve into the issues concerning loss increases and personal and commercial auto lines. The paper introduces readers to the hedonic (quality) adjustment to the consumer price index and discusses the alternate inflation index. Finally, the paper proposes strategies for assessing and managing trend as well as further areas of research.