This paper explores whether regulators and legislators need more information before embracing the current argument that social inflation necessitates immediate legal system reforms to stabilize insurance markets. Social inflation is a term describing how insurers are overpaying claims and incurring unwarranted loss adjustment expenses (LAE), often in litigation settings where the problem is exacerbated by gullible jurors and changing societal attitudes toward businesses and insurance companies. Social inflation generally is thought to be caused by lawyers, litigation financers, contractors, and other opportunists, including perhaps policyholders themselves. In a variety of states, a connection is perceived between social inflation and some insurers either becoming insolvent or leaving markets entirely.

This article analyzes whether data presented in recent literature on social inflation is sufficient for regulators and legislators to adopt a new wave of requested legal system reforms. This paper explores several potential concerns of legal system reform: Whether the literature adequately models the possible benefits to insurers of legal system reforms, as well as the possible harm to consumers. Whether the literature adequately explains why the proposed reforms are likely to be more successful than prior reforms. And whether there is yet sufficient development of the social inflation argument to act on the asserted conclusion that suspect actors are illegitimately changing societal attitudes to achieve unwarranted results. 

This paper concludes that as yet, there is not enough data for a regulator or legislator to confidently embrace further legal system reform. The reforms may be advisable, but it is too soon to tell, and there is significant risk that the reforms would do more harm than good.