Social Inflation; What Can Insurers Do About It?
A recent study by the Geneva Association on the topic of ‘social inflation’ addresses the challenges of defining and quantifying the phenomenon.
More important, it takes on the question of what insurers and reinsurers can actually do about it.
‘Social inflation is a term that is widely cited in insurance debates but it is often ill-defined or at best only loosely explained,’ the report begins. Broadly speaking, it ‘refers to all ways in which insurers’ claims costs rise over and above general economic inflation.’
Actuaries typically label such growth in claims costs ‘superimposed inflation,’ the study says, but their measures ‘may not adequately account for advances in medical technology, which create new therapies, change the costs of treatment, and increase the lifespan of seriously injured claimants,’ as well as other considerations.
More narrowly, the report says, ‘social inflation refers to legislative and litigation developments which impact insurers’ legal liabilities and claims costs.’