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Social Inflation and Nuclear Verdicts

Nuclear verdicts can tarnish an organization’s reputation and significantly impact its financial well-being, underscoring the need for effective mitigation and management plans.

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Outsized jury verdicts, or “nuclear verdicts,” are a primary driver of social inflation, where the costs associated with insured claims raise at a rate that exceeds general economic inflation. Nuclear verdicts are increasing in frequency and severity, threatening organizations of all sizes, across all industries, and in a growing number of regions. The potential extensive payouts associated with these verdicts also presents a concern for insurers, who are reviewing their risk portfolios and adjusting pricing.

Although mostly prevalent in the United States, social inflation is starting to impact organizations in other countries. It is therefore important for organizations, irrespective of their location, to be aware of the potential impact of social inflation on their business and take action to mitigate their risk.

Aside from insurability challenges — including increased premium costs and inability to secure sufficient limits — nuclear verdicts can significantly impact a company’s reputation, lead to loss of customer confidence, and threaten a business’ ongoing viability.

It is critical for businesses — whether in the US or elsewhere — to take action to address the potential impact of social inflation and nuclear verdicts through effective risk management and risk transfer practices.

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FAQs

The term social inflation refers to the trend of insured claims costs rising above general economic inflation. This is often due to large jury awards that exceed what might ordinarily be considered reasonable damages. Often referred to as “nuclear verdicts,” these outsized jury awards exceed US$10 million. So-called “thermonuclear verdicts,” which exceed US$100 million, are also increasing in frequency.

While outsized jury verdicts are mostly prevalent in the US, social inflation could also impact organizations in other countries. Europe and the UK, for example, have seen an increase in class actions and legislative changes while third-party litigation funding is also growing. Insurers outside the US are aware of the potential impact of these trends and may take actions to address them, potentially impacting insurance costs and availability of coverage.

While some industries tend to be at higher risk of outsized jury awards, virtually every organization — irrespective of its size or industry — could be impacted.

The potential of high claim payouts is leading to many insurers reviewing their risk portfolios and adjusting pricing. This is often resulting in significantly higher premium costs and an inability for impacted organizations to secure sufficient limits. Further, nuclear or thermonuclear verdicts can threaten organizations’ reputation and lead to financial losses.

Employing robust risk management practices and corporate governance is essential for organizations to mitigate the risks of nuclear verdicts. It is also important to regularly review open claim inventory to identify potentially volatile claims, engage in regular and open communication with insurers and brokers, deploy early claim intervention strategies, and prepare to vigorously defend claims that cannot be settled early. Further, fostering good relationships with the community and demonstrating good corporate citizenship can help organizations reduce the risk of an outsized jury verdict.

Our team of specialists can help organizations prepare for and respond to social inflation risks in several ways, including by:

  • Conducting comprehensive risk assessments to help you identify and evaluate the potential impact of and exposure to social inflation on your organization. 
  • Providing technical and organizational support to assist you to strategically and proactively handle claims that present the greatest risk of outsized verdicts.
  • Working with you to in evaluating and designing insurance programs that meet your needs in the context of rising litigation costs and increased jury awards.
  • Working with you in developing pre- and post-loss risk mitigation strategies, in coordination with legal and regulatory guidance from your other advisors, leveraging data and analytics, and offering industry expertise to tailor solutions to your organization's specific challenges.

Our people

Richard Ashe

Senior Vice President, Marsh Advisory

United States

Chetna Gulati Kapoor

Global Claims Advocacy Leader

United Kingdom

William F Liebler

US Chief Claims Officer & Managing Director, Claims Solutions

United States

Michael McCool

Managing Director, U.S. Chief Casualty Claims Officer

United States

Nicole Ng

Chief Claims Officer, Marsh Canada Limited

Canada

Rob Powell

Global Chief Claims Officer

United Kingdom

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