Eating the Elephant in the Room: Social Inflation


The paper claims that silent cyber first appeared in 2017’s WannaCry, Petya, and NotPetya intrusions, which wrecked everything from supermarkets and shipping ports to advertising agencies and law offices.

The master file encryption-related losses and subsequent Bitcoin ransom demands for access restoration cost the most money ever, totaling $3 billion.


Policyholders, brokers, and underwriters must be aware of how evolving risks and legal frameworks may affect their policies.

They also need to understand the scope of the problem, the most common misunderstandings, and the coverage concerns with silent cyber.


The Insurance Research Council (IRC) report Social Inflation: Evidence and Impact on Property-Casualty Insurance has more information on this.]



Much of the information that has been spoken and written on this subject has been more anecdotal than factual.

Social inflation is one of the numerous pressures on price, making it difficult to accurately evaluate for rating and reserving purposes.

Comparing the impact of social inflation and its components on claims losses over time with the growth of inflation measures like the Consumer Price Index has shown to be the most insightful method to think about social inflation and its components (CPI).


Lawsuit Financing


It’s been said that taking one mouthful at a time is the ideal strategy for eating an elephant.

We’re starting a series of blog posts devoted to each source and the impact of social inflation separately due to the variety and complexity of each.

The first series of essays will focus on litigation finance, which is the practice of third parties paying legal actions in return for a percentage of any settlement proceeds going to the plaintiffs.


Litigation funding used to be extensively outlawed, but as restrictions have loosened in recent years, the practice has expanded and spread, becoming a factor in societal inflation.


[See: Litigation Funding Increases as Courts Overturn Common-Law Bans on the Triple-I


Because litigation funding is a separate legal tactic with a well-established history and lacks many of the sociological nuances seen in other parts of social inflation, it felt like a good place to start our series.

We’ll examine the practice’s beginnings, how it arrived in the United States from outside, and follow its development alongside societal inflation.

We’ll also talk about the situation of litigation finance right now and any ethical issues that have come up in relation to it among lawyers.


With assistance from our collaborators at The Institutes, input from our members, and guidance from experts outside the insurance sector, IRC Vice President David Corum will be in charge of this series.

As is appropriate for any discussion of a complicated subject, we eagerly anticipate your responses and thoughts.