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Beyond new technologies, social inflation is one of the biggest disruptors facing the insurance industry, according to speakers at the Insurance Information Institute’s Joint Industry Forum in New York on Thursday.
Social inflation is an issue “frequently” discussed on insurer earnings calls, said David Sampson, president and CEO of the American Property Casualty Insurance Association, during a panel discussion.
Social inflation was a “big deal” starting in the second and third quarters and is going to be “a huge issue in the fourth quarter,” said V.J. Dowling, managing partner at Dowling & Partners Securities LLC, during the panel.
“The whole issue of social inflation I’d argue is two things. One, it is an excuse by companies to kind of hide the fact that we’re starting to get reversion to the mean as far as loss costs that came out of the last financial crisis and were very benign. It’s catching up. There’s a certain amount of just having been under reserved,” Mr. Dowling said.
“But there is something going on additionally as far as the social inflation (and) courts. When millennials come on juries, they have a different view of fairness.”
“There are more and more jury awards coming back that are greater than what the plaintiff is asking,” said Mr. Sampson, who moderated the panel discussion “Insurance Vision: Seeing Beyond 2020” at the forum.
Increasingly sophisticated lawyers and litigation finance are also factors, according to Mr. Dowling.
“Now there’s an industry with billions of dollars that is financing these cases, so the time it takes to settle is much longer, the willingness for the plaintiffs’ bar to settle is less because they’re being financed,” he said.
Certain lines of business, such as commercial auto, have been affected, he added.
“As we look at major disruptors in the near- to mid-term, one of the things we’re focused on at APCIA is promoting legal defense and reform initiatives and trying to change the trend line on social inflation,” Mr. Sampson said.
Though not exactly a disruptor, the industry needs to be conscious of “the generations coming up behind us and what their interests are in and what their skill sets are,” said Hayley Spink, head of global operations at Lloyd’s of London, during the panel discussion.
There’s a need to get “the right people with the right skills into our industry to make sure it’s here in 100 years’ time,” Ms. Spink said.
“There are lots of other industries that are going to pick up these really good guys when they are coming out of university and college with the skills they have. We can’t lose sight of the fact this is a great industry to be in,” she said.
Technological transformations have the potential to greatly improve policyholder experience, but also to disrupt the ways insurers do business, panelists agreed.
“The world has changed. I grew up in a world where the insurance industry played chess. Now we’re in a world where you’re playing speed chess, and the cost of errors is going to be severe,” Mr. Dowling said.
“A lot of people are going to be left in the dust. We believe the winners of the future will be for the most part existing carriers who learn to work with these new technologies and don’t have a mentality of ‘not invented here,’” he said.
Technology and data enable Lloyd’s of London to add value to clients over a broad range of risks, Ms. Spink said. “Using information is not a new thing. People have used information to price products and understand what their clients want for many years,” she said.
“If we can make sure we capture the right quality data up front, that enables us,” she said. “It has to be used and analyzed correctly to be able to price our products correctly and to understand what our clients want.”