Swiss Re’s latest report on social inflation is a must-read for claims professionals. Their sigma No 4/2024 study, “Litigation costs drive claims inflation: indexing liability loss trends,” offers a comprehensive look at this growing challenge. The findings are sobering: the U.S. liability risk pool is expanding rapidly, with commercial casualty insurance sector losses growing at an average annual rate of 11% over the last five years. Importantly, this isn’t just a U.S. phenomenon anymore. The UK, Australia, and Canada are also experiencing similar trends, albeit to a lesser degree. As claims leaders, it’s crucial we understand and adapt to this changing landscape. With that in mind, let’s explore three essential strategies that can help your claims department navigate the complexities of social inflation.

1. Embrace Your Inner Data Nerd

In today’s claims environment, data should be at the forefront of your decision-making process. Modern claims departments need to utilize their data effectively, not just for reporting, but for predicting future trends. Predictive analytics can help you identify potential high severity claims before they escalate. 

By analyzing historical data, court rulings, and social trends, you can spot patterns that may indicate where social inflation is likely to impact your claims. This foresight allows you to proactively adjust your strategies, whether in reserving, settlement approaches, or litigation decisions.

If you’re not using your claims data to anticipate future challenges, you’re missing a crucial tool in managing social inflation. The ability to predict which claims are likely to result in larger-than-expected payouts can be a game-changer for your department.

Predictive does not always mean some hi-tech analytics model. Predictive can also be developing, using and analyzing the correct trends within your existing data. 

2. Early Case Assessment: Your New Best Friend

In the age of social inflation, early case assessment has become more critical than ever. The sooner you can identify high-risk claims, the better positioned you’ll be to make informed decisions about how to handle them.

Your early case assessment process should be comprehensive and efficient. It should help you quickly identify claims that have the potential to result in large verdicts or settlements. This might include cases in jurisdictions known for high awards, claims involving severe injuries, or those that touch on hot-button social issues.

By identifying these high-risk claims early, you can develop appropriate strategies – whether that means early settlement negotiations, allocating additional resources for defense, or preparing for potential litigation. Early case assessment is your first line of defense against the impacts of social inflation.

3. Invest in Advanced Technology

If your claims department isn’t leveraging advanced technology, you’re at a significant disadvantage in today’s environment. Advanced data analytics tools and AI can process vast amounts of claims data quickly and accurately, identifying patterns and predicting outcomes that might not be apparent to human analysts.

These technologies can help you process claims more efficiently, spot potential fraud, and assist claims professionals in making more accurate reserve estimates. They can also assist in identifying trends in jury awards and settlement amounts, helping you stay ahead of the curve in your claims handling strategies.

However, it’s not enough to simply have these technologies – you need to use the insights they provide to inform your strategies. Use this data to adjust your reserves, refine your pricing models, and guide your overall claims handling approach.

Adapting to the New Normal

Social inflation is reshaping the claims landscape, and it’s clear that this trend isn’t going away anytime soon. By embracing data analytics, prioritizing early case assessment, and leveraging advanced technology, your claims department will be better equipped to navigate these challenges.

Remember, the goal isn’t just to react to social inflation, but to anticipate and mitigate its effects. With these strategies in place, you’ll be well-positioned to manage claims effectively in this new environment.

What strategies is your claims department using to address social inflation? Share your thoughts in the comments below – let’s learn from each other and develop best practices for this ongoing challenge.