Takeaways:
- Social inflation continues to rise
- The role of the plaintiffs bar
- AI's role in identifying social inflation trends
Insurers have been watching the steady increase in social inflation for the last decade as factors such as the evolving legal landscape, societal influences, extensive attorney advertising and third-party litigation funding feed its growth.
At the recent Insurtech Insights conference in New York City, a panel comprising Meredith Barnes-Cook, senior principal at Datos Insights; Lisa Bellino, vice president of claims, judicial and legislative affairs for Zurich North America; and Richard Wolf, managing director of casualty claims at Markel, discussed what they're seeing in the industry with global insurance and claims expert, Ian Thompson of IMT Advisory, who moderated the session.
Bellino told the audience that the industry is experiencing a disproportionate increase in the size of loss liability claims as compared to the growth of general inflation. She also explained that while one hears of astronomical numbers for these judgments, only 12% of the jury awards go to the plaintiffs, while approximately 88% go to the litigation funders behind the lawsuits.
Wolf highlighted the trickle-down effect these awards have on consumers and businesses because the costs are passed onto the customers, whether they realize it or not. "We haven't done a good job of explaining that to the consumer," he said, "and they need to understand the role of insurance and how payouts need to be fair and reasonable."
Can analytics and other technologies help reverse the trend?
With artificial intelligence and other technologies now available, Barnes-Cook questioned whether predictive analytics would be able to help mitigate exposures for these claims. "How can carriers organize all of their litigation information, and will they share it so we can leverage these tools to help better understand the implications of this data?" She shared that the data could be used to identify early warning signs in claims that require human intervention.
Wolf concurred, saying this information could be particularly helpful in identifying claims that have a possibility of escalating into lawsuits. "You can have that conversation at every level and earlier in the process by using these tools like AI and a knowledgeable staff to identify claims that have a potential for litigation," he advised.
Thompson asked whether the use of technology could help speed up the claims process for carriers and policyholders, and Barnes-Cook indicated that it could be leveraged for the decision-making process in particular. This could be a key issue as more claims professionals retire in the coming years and teams need to learn how to handle the growing number of catastrophic losses for carriers.
The impact of the plaintiffs bar
A key component of the growth of social inflation is the role of the plaintiffs bar in many of these lawsuits. Thompson questioned why they were so adept in this area.
Bellino explained that they are a well-organized machine and are able to respond quickly to a changing environment. "They put themselves out there with their advertising and they
are effective in how they advertise," she said, giving examples of ads that promise to recover $15 million for clients or stressing that plaintiffs "deserve compensation" for injuries or other circumstances. "They've stacked the deck before we get into the courtroom and their trial tactics are hard to combat because they are swaying sentiment against corporations and insurers."
Wolf shared that the law firm Morgan & Morgan spends $100 million on advertising each year, promoting the idea that "corporations and companies are bad and if you come to us, we will fix it." So far, the insurance industry has not fought back against these efforts, he said.
Bellino stressed the importance of getting carriers, brokers and trade associations to communicate and work together. "Educating people is the best way to answer any problem," she shared. "We have to talk to customers and brokers to explain the impacts and as an industry, we have a loud voice together."
She explained that she works with defense lawyers regularly and that when the insurance industry and lawyers get together, that is where there are opportunities to make a difference.
Artificial intelligence can also help companies go through their claims files to identify problem claims or recurring trends. "Using technology frees up our staff to focus on other aspects and think about the problem and how to solve it," said Wolf.
Bellino indicated that legislation is being passed in a number of states including Montana and Florida, to address some of the inequities with the plaintiffs bar. "We need to educate customers and the legislatures because we want things to be reasonable and fair."
The panel's consensus was that collaboration and education were two primary keys to changing the trajectory of these verdicts, and they are beginning to see carriers, attorneys and insureds working together to change the outcomes. "This is an insurtech conference and it's on the agenda," said Barnes-Cook. "We're putting our genius forces on this topic to make it better."
