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Captives can help dampen social inflation risk: Panelists


RANCHO MIRAGE, California — Social inflation is having a growing impact on insurance claims, but there are steps captive owners can take to combat its effects, experts say.

All insurance sectors are being affected by social inflation in some way, said Amy Klatt, Atlanta-based vice president of captives and programs-claims, at Skyward Specialty Insurance during a panel session Tuesday at the Captive Insurance Companies Association 2023 International Conference.

“It’s across every claim, across every line of business, across every sector out there in the market,” Ms. Klatt said.

Commercial auto/transportation, medical malpractice, professional liability, directors and officers liability and product liability are the five areas of the industry, she said, that are most impacted by social inflation, or higher court awards and settlements.

Many of these claims have a bodily injury component, which is what is driving losses,  she said.

Some 80% of potential jurors don’t trust corporations and think they value profits over safety, said Caryn Siebert, Orange County, California-based vice president of carrier engagement with Gallagher Bassett.

People are trying to teach large companies a lesson, Ms. Siebert said. “There’s a feeling by jurors that if I hit them with a $100 million verdict, it’s not going to teach them a lesson. It’s got to be a billion dollars,” she said.

The impact of jury trials and higher jury awards is seeping down earlier in the claims mediation stage, said Colin Donovan, Chicago-based president of Stico Mutual Insurance Co., a risk retention group. Stico provides pollution liability coverage to storage tank manufacturers and contractors.

About a year ago, the risk retention group noticed an uptick in the frequency and severity of its claims, Mr. Donovan said. In its first 15 years of existence, Stico averaged about one large claim — those over $100,000 — every three years, but in the past five years it has averaged nearly three large claims every year, he said.

“What’s driving that in our case is the settlement costs,” Mr. Donovan said.

In an environment in which insurance losses are rising due to social inflation, there are various steps captive owners should take to manage the impact, Ms. Klatt said.

Maintaining compliance with state regulatory and licensing requirements, ensuring adequate hiring practices and retention, and establishing a safety culture and documenting it are important, she said.

Using technology such as vehicle cameras, consulting with insurance professionals, and documenting claims can also help tell an organization’s story and avoid a nuclear verdict, Ms. Klatt said.