About This Event
Social inflation (rising liability claim costs beyond general economic inflation) has become a major concern for insurers and reinsurers, yet it is difficult to quantify because litigation outcomes are heavy-tailed and case-mix changes over time. Using a large database of U.S. jury verdicts and settlements, we develop case-mix-adjusted social inflation measures through multiple channels: plaintiff win rates, settlement propensity, and verdict/settlement severity. The approach combines rolling-window logistic regression for probabilities and Value-at-Risk regression for severities, with uncertainty quantified via a random-weighted bootstrap. We find statistically significant increase in plaintiff win probability, decline in settlement probability, and sharp increase in verdict severity. Social inflation is more pronounced for corporate-defendant and uninsured-defendant cases and in states without tort caps/TPLF regulation. Also, social inflation has impacts not only on "nuclear verdicts", but also similarly on moderate losses.
This research is funded by CAS-RFP "Quantify Reinsurance Costs from Social Inflation"
