Social Inflation Insight

Higher Premiums on Main Street

Good morning,
Here at Triple-I, we know social inflation affects many of our readers in the form of higher insurance payouts. This week, we’re highlighting a report from the American Property Casualty Insurance Association (APCIA) on the effect rising payouts have on small businesses. When discussing with lawmakers why social inflation is vital to address, it is essential to illustrate the negative impact it leaves on small businesses and consumers. 
APCIA notes the dramatic effects that inflation and lawsuit abuse have had across our communities, like increasing the cost of business insurance.
“Skyrocketing inflation and legal system abuse have forced prices higher across society... As a result… insurers are facing significantly higher claims costs. [So much] so that insurers’ claims costs and expenses now are higher than what they collect in premiums in many cases.” They conclude that “As a result, the insurance rates that insurers can offer to businesses have had to increase, including on some of the types of insurance frequently utilized by small businesses, including property, auto, liability, and cyber insurance.

Concerning business insurance, APCIA notes that “inflation in insurance claims has been rising even faster than CPI, outpacing increases in premiums” and that lawsuit abuse is one of the driving factors. The impact cannot be understated. Small businesses rely on business insurance, often a commercial multi-peril policy, to protect their business from costly unexpected catastrophes. 

This trend has also impacted the commercial auto insurance market. According to the APCIA, increased attorney involvement in commercial auto claims has risen in conjunction with the rise in liability payouts, with nuclear verdict payouts rising from $300 million in 2011 to over $1 billion in 2019. Also quoted in the article is the American Transportation Research Institute’s (ATRI) February 2022 study on rising insurance costs in the trucking industry, highlighting how litigation has contributed to a “loss of coverage capacity” in the commercial auto insurance market. 

The message is clear: allowing lawsuit abuse to continue will directly impact small business viability and future economic growth. 

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