As a business owner, you’re always looking for ways to manage costs. So, when you see your insurance premiums go up, it’s natural to ask why. While standard economic inflation plays a role, there’s another major factor at play: legal system abuse. This trend is adding billions to insurance losses, and those costs are being passed down to policyholders like you.
At Bull Insurance Agency, we believe in making insurance simple and transparent. We want to help you understand the forces that affect your premiums so you can make informed decisions for your business. This post breaks down what legal system abuse is, how it’s impacting the insurance market, and what it means for your bottom line.
Understanding “Social Inflation”
You’ve probably heard of economic inflation, where the cost of goods and services rises over time. But have you heard of “social inflation”? This term describes how shifts in societal views and legal trends drive up insurance claim costs beyond what standard inflation would predict.
Recent research from the Casualty Actuarial Society (CAS) and the Insurance Information Institute (Triple-I) puts a number on this problem. Over the last decade, legal system abuse has added between $231.6 billion and $281.2 billion to liability insurance losses.
This isn’t just about general prices increasing. It’s about a fundamental change in our legal environment that’s making insurance more expensive for everyone.
What’s Driving Up Insurance Costs?
Several factors contribute to social inflation and the rising cost of claims. These trends create an environment where lawsuits become more frequent, more expensive, and less predictable.
Key Drivers of Legal System Abuse:
- Bigger Jury Awards: Juries are increasingly awarding massive sums in liability cases, often called “nuclear verdicts.” These multi-million dollar payouts create a ripple effect, pushing up the value of settlements for similar cases.
- Third-Party Litigation Funding: This is where outside investors fund lawsuits in exchange for a portion of the settlement. It encourages more lawsuits to be filed, even weaker ones, because the plaintiff has less financial risk. This practice can prolong litigation and drive up settlement amounts.
- More Attorney Advertising: You’ve likely seen the ads on TV, billboards, and online. Increased spending on lawyer advertising can lead to more people filing claims, which adds pressure on the system.
- Changing Legal Standards: Shifting interpretations of liability and responsibility in the courtroom make it easier for plaintiffs to win cases and secure larger awards, increasing uncertainty for insurers.
The Triple-I and CAS report highlights that these factors are creating a structural rise in claim costs. Sean Kevelighan, CEO of the Triple-I, stated, “Legal system abuse, manifested through excessive verdicts and litigation behaviors, has fueled a structural rise in claim costs that continues to increase costs for insurers and policyholders alike.”
How Different Insurance Lines Are Affected
The impact of social inflation isn’t felt equally across all types of insurance. The CAS and Triple-I study broke down the added losses by specific liability lines.
Auto Insurance
Both personal and commercial auto insurance have been hit hard. Together, they account for the majority of the added losses, totaling between $143.6 billion and $173.1 billion over the last 10 years.
- Commercial Auto: This sector saw the most significant impact relative to its size, with added costs making up 22.6% to 30.8% of its booked losses. The primary driver here is claim severity—the cost of individual claims—which rose by an astounding 93.5% from 2015 to 2024. That’s a growth rate of 7.6% per year, more than double the average economic inflation during the same period.
- Personal Auto: While the percentage impact was lower (8.7% to 9.7% of losses), the sheer volume of personal auto policies means it still added between $91.6 billion and $102.3 billion in costs.
General & Product Liability
General liability lines, which cover a wide range of business risks, also saw significant inflation. These lines accounted for $88 billion to $108.1 billion in added losses.
This shows that the problem is widespread, affecting nearly every business that carries liability insurance.
Your Trusted Partner in a Complex Market
We know this information can be concerning. Rising premiums add another layer of complexity to running your business. But you don’t have to navigate it alone. At Bull Insurance Agency, our job is to be your trusted partner. We take the frustration out of insurance by shopping the market for you, finding the best combination of coverage and cost.
While we can’t control the legal system, we can help you:
- Understand Your Risks: We’ll work with you to identify potential liabilities and ensure your coverage is tailored to your business needs.
- Find the Right Coverage: As an independent agency, we have the freedom to find policies from a wide range of carriers, giving you more options.
- Manage Your Policies: We simplify the process so you can feel confident in your protection without getting lost in the details.
The trend of legal system abuse doesn’t seem to be slowing down. Until it does, business owners will likely continue to face the possibility of rising premiums. By staying informed and working with a knowledgeable partner, you can ensure your business remains secure and resilient.
If you have questions about your current coverage or want to explore your options, let’s talk. We’re here to make insurance easy so you can focus on what you do best—running your business.