Social inflation

The issue

The term social inflation refers to an increase in litigation, plaintiff-friendly judgements and higher jury awards. This is resulting in legal compensation costs over and above basic economic trends. Social inflation is driven by non-economic factors which include the increasing sophistication of plaintiff attorneys, negative sentiment towards corporations and an increased propensity to sue. Its effects are most strongly felt in the US due to a rise in verdicts where settlements exceed USD 10 million. These are mostly driven by outsized awards for non-economic damages.

The risk

The COVID-19 crisis is likely to amplify rather than alleviate contributing societal factors, such as economic, educational and health inequality. This could lead to a hardening of public sentiment and attitudes towards insurers’ interpretation of coverage levels and limits.

Further, the rising use of litigation financing, where legal costs are funded by a third party in exchange for a portion of the awards, could impact future claims trends by contributing to an increase in court cases – especially class actions. Of the USD 17 billion investment into litigation funding globally in 2020, more than half was deployed in the US, according to a recent Swiss Re Institute study. Currently, major risks such as the increasing and long-term use of opioids and talcum powder are being litigated in US courts. Without a broader policy reset to reduce inequality, social inflation is here to stay.

The opportunity

The costs of social inflation are ultimately borne by consumers through higher prices for goods that reflect the higher costs of litigation and insurance. There is an opportunity for governments to create positive change for society, such as through the revision of legislation to create more predictable trials or through measures to reduce social, educational and health inequality. Swiss Re has taken a cautious stance by reducing exposure to social inflation over the past two years and continues to tightly manage it.

Understanding new societal risks

Understanding the factors that contribute to social inflation will provide corporations and insurers with the skill set to better predict potential risks and losses that could result from certain claims and suits.


Standardised data sets on the drivers of this issue are not yet available. Swiss Re’s Casualty Research and Development team is developing techniques to monitor trends and to anticipate the next wave of social inflation. For example, they have analysed the increase in legal companies’ use of advertising and how this is helping them to recruit plaintiffs for class actions.


The team comprises 22 members in Zurich, Bangalore and Armonk. With their expertise in quantitative sciences, they build forward-looking risk models in areas where historical data is difficult to find or simply non-existent – such as trends connected to social behaviours and legal changes.


The rapid rise in social inflation has been the team’s biggest challenge over the past years. They have contributed to advancing the development of forward-looking underwriting, managing liability exposure and strengthening the detection capabilities of early warning signals.


Furthermore, Swiss Re Institute recently published a research paper, “US litigation funding and social inflation: the rising costs of legal liability”, which explores how litigation funding is contributing to social inflation in the US by incentivising litigants to initiate and prolong lawsuits. Higher claims costs drive up insurance premiums, reduce the availability of liability cover and lead to higher uninsured legal liability risks for US businesses. These costs are ultimately paid by consumers.

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