Last Updated: 12/19/2025
Social inflation is a term that describes how insurers’ liability claims costs are increasing above general economic inflation. This is generally thought to be due to a trend in increasing litigation costs brought by plaintiffs seeking large monetary relief for their injuries. The “social” aspect of the term represents shifting social and cultural attitudes about who is responsible for absorbing risk (the insurer or the plaintiff). The varying demographic makeup of jury pools, an increased public distrust of large corporations, and the influences of social media and legal marketing can all influence jury verdicts and awards. There are several major contributors to increased litigation costs and social inflation, though.

Nuclear verdicts, generally defined as jury verdicts exceeding $10 million in punitive and compensatory awards, are one of the largest contributors to social inflation. Nuclear verdicts often arise from sympathetic juries who perceive big businesses as having deep pockets and responsible for plaintiffs’ injuries. A September 2022 study by the Institute for Legal Reform found that nuclear verdicts were most frequently found in product liability (23.6%), auto accident (22.8%) and medical liability (20.6%) cases.  

Third-party litigation funding (TPLF) also has an effect on social inflation. TPLF refers to a practice where investors help plaintiffs finance lawsuits against companies in return for a portion of the settlement. As of 2021, litigation funding had become a $17 billion industry globally, with just over half that amount spent in the United States. A Swiss Re report found that TPLF is “contributing to growing loss ratios for excess liability, commercial auto, medical malpractice and general liability” and leading to increased premiums for consumers.

Others have suggested that the rollback of tort reform measures, put in place during the 1980’s to protect insurers from insolvency causing losses, have led to an increase in social inflation, though the research on this is not conclusive.

The lines of business most affected by social inflation include commercial auto (especially the trucking industry), professional liability, product liability, and directors and officers liability insurance. A 2022 study by the Insurance Information Institute and the Casualty Actuarial Society found “social inflation accounted for $20 billion in commercial auto liability claims between 2010 and 2019.” There is also research to suggest that the impact of social inflation is starting to impact personal auto lines as well.  

Social inflation may impact consumer costs as well. Businesses and consumers could see the higher costs resulting from litigation being passed onto them by way of higher insurance premiums. Because social inflation by nature is difficult to measure and plan for since it deals with cultural attitudes and public perceptions, insurers may not reserve appropriately and are at increased risk of insolvency. Historically, the largest cause of liability insurer insolvency has been under-reserving.

Proposed solutions to social inflation include robust local corporate social responsibility  campaigns to counteract anti-corporate bias and maintain a positive image in local communities. Raising awareness on how social inflation impacts consumers through skyrocketing insurance costs may also be an effective strategy to raise awareness. Some experts conclude tort reform, similar to the kind introduced during the 1970’s and 1980’s, might be needed to halt the rapid rise of lawsuits contributing to social inflation and increased insurance costs. Other experts say tort reform historically has not slowed down the current trend of nuclear verdicts and are cautious that moving in that direction would do little to ease the burden.

Disclosure and regulation of third-party litigation funders is another potential solution to reign in social inflation. TPLF is a largely unregulated industry in most states, though many U.S. district courts have rules requiring attorney disclosure of TPLF agreements in civil cases and legislative proposals have popped up at both state and federal levels. Organizations such as the U.S. Chamber of Commerce Institute for Legal Reform and APCIA advocate for more transparency and disclosure of third-party litigation funders in lawsuits.  

The NAIC’s Property and Casualty (C) Insurance Committee is charged with monitoring and responding to issues in the P&C insurance market. Additionally, the Financial Condition (E) Committee coordinates and monitors solvency-related issues for all lines of business in the U.S. insurance market.

The CIPR has explored social inflation in depth as part of its Regulator Insight series and through other events. During the 2021 NAIC Summer National Meeting, the CIPR held a presentation addressing U.S. Property/Casualty losses and emerging casualty and catastrophe risks through the lens of social inflation.