Social Inflation’s Impact on Insurance in 2025

This post is part of a series sponsored by IAT Insurance Group.

Social inflation is not a new phenomenon, but its effects are becoming more pronounced across the insurance industry. In Episode 11 of What’s Brewing, Chris Accetta, VP of Product Management at IAT Insurance Group, and David Geller, Senior Product Manager, discuss the pressing concerns surrounding social inflation and what it means for the industry in 2025.

Tune into the episode here.

1. What is Social Inflation?

Social inflation refers to the rising costs of insurance claims that exceed standard economic inflation. Over the past decade, claims costs have escalated due to various legal and societal shifts, making it a growing concern for insurers. The rollback of tort reform, increasing jury sympathy, and evolving attitudes towards corporations have all contributed to this trend. As David explains, the rise of “reptile theory” – a legal strategy appealing to jurors’ emotions—has provided a roadmap for plaintiffs to secure increasingly larger payouts.

2. What Are the Main Factors Driving Social Inflation?

Several interconnected factors can fuel social inflation:

• Shifting Jury Attitudes: Increased anti-corporate sentiment, particularly among younger jurors, may be contributing to higher verdict amounts.
• Nuclear Verdicts: Large, unexpected verdicts in the tens or hundreds of millions of dollars have become more common, exacerbating the issue.
• Third-Party Litigation Funding (TPLF): Hedge funds and private investors fund lawsuits, prolonging litigation and increasing the risk of nuclear verdicts. TPLF is reported to be a $17 billion industry and has been linked to a surge in lawsuits that have the potential to reach class-action status.
• Social Media Influence: The rapid spread of emotionally charged narratives can sway public perception and impact trial outcomes.

3. Which Industries Are Most Affected?

Certain industries – as well as their insurance carriers – are disproportionately impacted by social inflation, including:

• Trucking: High accident frequency and public perception of trucking companies as negligent have led to rising claims costs.
• Product Liability: Consumer goods and medical devices are prime targets for class-action lawsuits, which makes these industries attractive for TPLF firms and can fuel targeted advertising to expand the plaintiff pool.
• Intellectual Property & Trade Secrets: Litigation is increasingly being used as a tool to expose the defendant’s proprietary information, making companies in industries with highly valuable IP particularly vulnerable.

4. How Can the Insurance Industry Respond?

The industry is taking several approaches to address social inflation:

• Shifting to Non-Admitted Markets: The need for greater pricing and coverage flexibility has led to a migration of casualty policies toward non-standard insurance markets.
• Stronger Underwriting Practices: Insurers are scrutinizing policy language, ensuring airtight terms and conditions, and assessing potential litigation risks more carefully.
• Legislative Efforts: Some states have enacted or proposed laws to increase transparency in litigation financing. As of publishing, six states have laws in place, and 14 more are considering similar regulations.
• Pricing Adjustments: Insurers may need to reevaluate their general liability pricing to better align with rising claims expenses and ensure long-term sustainability.

Final Thoughts

Social inflation presents a complex and evolving challenge for the insurance industry. As Chris and David highlight, insurers must remain proactive—monitoring legislative developments, refining underwriting practices, and adapting to shifting societal attitudes. The coming years will be critical in determining how effectively the industry can navigate these challenges while maintaining stability for policyholders and businesses alike.

Stay tuned for more insights on What’s Brewing as we continue to explore key trends shaping the insurance landscape.