Allianz Commercial claims that “nuclear” verdicts have tripled.
Growing tendencies in social inflation, especially in the US, are causing profound changes in the worldwide liability insurance market.
The escalating expenses of insurance claims brought on by things like litigation funding, plaintiff-friendly courts, and big jury awards—often referred to as “nuclear verdicts”—are referred to as social inflation.
Even though this phenomena has primarily affected the US, new developments in other areas, like Europe, suggest that its impacts may be global and affect insurers.
Arne Holzheuer (pictured below), a global practice group head for liability in the chief claims office at Allianz Commercial, stated that “collective actions are already becoming more prevalent in some European countries, as consumer groups start using collective redress frameworks and legislative change to chastise companies and fund remedial work, while consumer protection agencies have already brought claims in areas like water quality and pharma.”
According to Holzheuer, a record 133 class actions were launched in Europe last year, up 10% from 2022. More than three-quarters of these were filed in the UK, Netherlands, Germany, and Portugal. The main areas of lawsuit were consumer, personal injury, and product liability.
What’s driving US “thermonuclear” verdicts?
A combination of social, legal, and economic issues have contributed to social inflation in the United States. According to a new liability trends analysis by Allianz Commercial, “nuclear” verdicts (those worth more than $10 million) have tripled since 2020, marking a record amount of supersized verdicts rendered by US juries in recent years.
According to Allianz Commercial, these convictions increased by 27% in 2023 alone, while so-called “thermonuclear” verdicts (those worth more than $100 million) increased by 35%. In the same time frame, the median verdict value has more than doubled.
The rise in verdicts over $100 million is being caused by a number of causes, including rising liability costs in a variety of industries, including chemicals and automobiles, as well as an impact on the capacity deployment and profitability evaluations of international insurers.
The most important factors are the decline of tort reform, the change in plaintiff lawyer tactics, and the social consciousness and demography of juries.
Significant constitutional challenges have been made to non-economic damage caps, and numerous states have overturned them on the grounds of equal protection and the right to a jury trial.
The success of tort reform initiatives, such restrictions on non-economic damages, has varied, according to Joerg Ahrens (shown below), global head of major case management, long tail claims at Allianz Commercial.
According to Ahrens, “in the absence of more effective reform, greater cooperation between insureds and insurers is needed to mitigate the spiralling cost of liability claims. This includes adopting a robust defence in cases and a tougher stance to settlements.”
At the same time, plaintiff lawyers are employing advanced tactics, leveraging public mistrust of corporations and utilizing emotional appeals to secure higher compensatory and punitive damages. This, combined with younger, more diverse jury pools that often sympathize with plaintiffs over corporations, has contributed to the normalization of high-value awards.
Emerging liability risks – pharma, PFAS chemicals, and more
In Europe, some factors driving increased collective actions include:
- Legislative changes: Consumer redress frameworks and enhanced access to justice are empowering consumer groups to hold corporations accountable.
- Active consumer protection agencies: Organizations have initiated claims in critical areas like water quality and pharmaceuticals.
- Product liability and personal injury cases: These have become leading sources of litigation, reflecting a trend towards higher accountability for companies.
The chemical and pharmaceutical sectors are especially susceptible to social inflation because of the intricate liability claims they face. In the US and Europe, class lawsuits concerning “forever chemicals” and unfavourable pharmacological outcomes are becoming more common, according to Allianz Commercial.
In its study, the insurer cited an expanding list of pharmaceutical, food, and chemical products—such as painkillers, talcum powder, indigestion cures, and herbicides—that are the focus of billion-dollar class action lawsuits. Due to scientific studies, regulatory mandates, or voluntary product withdrawals that may be hazardous, cancer is becoming a more common component of these situations.
Due to the long latency of cancer signs and the fact that dangers are only recognised years after a product is marketed and the insurance is insured, such claims cause volatility for liability insurance.
Holzheuer asserts that the key to reducing the impacts of social inflation is putting up a strong resistance.
“Using specialised law firms and having the right people and expertise at both a local and global level are important,” he stated. “As the plaintiff sector grows, it is important for both insurers and consumers to develop strong relationships, communicate effectively, and feel a sense of ownership over these claims.
“Insurers may need to increase their investments in their claims capabilities, from talent to data analytics, in order to mitigate the effects of social inflation and present the strongest and most reliable defence.”
What do you think about global liability trends, including social inflation? Leave a comment below.
