For the better part of a decade, U.S. business leaders have watched their general liability insurance rates climb steadily higher. Defense and claim costs are increasing, driven in part by social inflation, which is grown faster than the overall inflation rate and the severity of non-litigated claims. A recent MarshBerry study noted that by the end of 2022, juries awarded a median $36 million in product liability cases—up 50% from 2013 levels.1
With verdicts and settlement amounts becoming increasingly unpredictable and harder to assess, it’s more than important than ever for companies to do a comprehensive review of their liability exposures and risk management functions.
“Businesses must identify and manage the changing nature of liability risks in today’s litigation environment to reduce their overall exposure to social inflation,” explains Mike Low, head of Complex Liability Solutions at The Hartford.
What’s Driving the Higher Severity
General Liability insurance helps protect businesses from claims involving bodily injuries and property damage that occur during normal business operations. Low explains that by the end of 2024, general liability coverage rates had risen for 28 consecutive quarters, driven largely by rising claims and escalating awards. He points to three powerful drivers behind those premium increases:
Social Inflation
Social inflation refers to the rising costs of insurance claims resulting from changes in social trends within the fabric of society itself, such as juror attitudes and socioeconomic inequities.
“We’re seeing a growing sentiment from juries that corporations should be accountable for any perceived wrongdoing and the legal system should correct social injustices,” says Low. “Plaintiff attorneys are also asking for higher non-economic damages, such as pain and suffering and emotional distress, which in many states are not capped. That’s led to significantly higher awards than even a few years ago.”
Litigation Funding
Filing a product liability lawsuit can be expensive, and litigation funding is a financial transaction by which third party investors fund a plaintiff’s litigation in exchange for a percentage of the plaintiff’s prospective damages award. Over the past decade, this financing has grown to a $15 billion business that’s now specializing in funding for cases of all sizes, not just mass torts.2
“Plaintiff attorneys can now access litigation funding for individual case loans, which means potential litigation exposure for a wider range of mid-to-large-sized businesses,” says Low.
Record Verdicts
Also known as “nuclear verdicts,” jury awards of $10 million or more rose to a 15-year high of $14.5 billion in 2023 because of all the factors listed above.3 As verdicts tend to make headlines, companies don’t just bear the potential financial impact, reputational risk grows as well.
“Carriers are reporting significant increases in prior-year development, which essentially means paying claims in today’s dollars for premiums collected five to seven years ago,” Low says. “Simply put, as more plaintiffs can afford to bring matters to court for a wider range of risk targets across a company’s history, more cases will likely put more pressure on liability rates.
Increasingly large, complex claims aren’t the only problem. Low points out that carriers are seeing incremental increases in attritional losses, which are the smaller, more frequent claims that occur as part of the normal course of business, further increasing overall loss costs.
Today, carriers are responding to such incidents—large and small--with more disciplined underwriting on terms and conditions, higher deductibles and retentions while managing their overall capacity.
Risk managers and business leaders can mitigate their exposure by staying aware of the external trends and adopting effective loss prevent and risk management strategies.
How Companies Can Mitigate Their Liability Risk
The first step, Low indicates, is working with experienced specialists and a carrier partner that understands your industry and risk profile to provide innovative solutions along with litigation strategies to ensure best outcomes. They should provide:
- A complete and comprehensive liability review that fits the current and future needs of the business. Insureds should start early to understand inflation trends and be certain they understand their liability exposures and the current litigation environment. This involves reviewing industry trends, historical claims data, and regulatory and legal developments. Specialization and customization is key for higher hazard liability exposures. Additionally, leveraging data analytics can enhance liability risk assessment by identifying and evaluating potential risks more effectively.
- A proactive, collaborative approach with their insurance partners that anticipates future risks and works seamlessly to create a culture of risk management as the business expands into new areas.
- Risk engineering support from your carrier partner to help implement and invest in proactive risk management strategies, such as improving safety protocols, conducting regular assessments, and provided training to employees. This helps minimize the likelihood of incidents that could lead to liability claims. Effective risk mitigation strategies also involve continuous risk monitoring to adapt to emerging risks and ensure the risk management remains effective.
- Specialized claims expertise with strategic guidance on litigation management, data analytics, and risk mitigation strategies for more predictable claim outcomes. Utilizing technology to integrate these tools into risk management processes fosters informed decision making and improved organizational resilience.
“Few companies today can take a standard approach to their general liability coverage,” Low says. Mitigating the impact of social inflation requires a proactive, collaborative approach with thoughtful risk management strategies tailored to the unique needs of each business.
By adopting these comprehensive measures, companies can better navigate the complexities of liability risk. This not only helps in protecting their assets but also ensures long-term sustainability and resilience in ever-evolving risk landscape. Working closely with experienced specialists and carrier partners, businesses can stay ahead of potential threats and maintain a robust risk management framework that adapts to new challenges and opportunities.
1 “From Client to Courtroom: The Impact of Nuclear Verdicts,” MarshBerry, July 17, 2024.
2 “Big Law Grows Litigation Finance to Cut Risk, Please Clients,” Bloomberg Law, September 4, 2024.
