Pennsylvania State Rep. Perry Stambaugh (R-86) said costs coming from "predatory lawsuits" in the health care sector are harming families and businesses.
"Escalating costs associated with predatory lawsuits, particularly in the health-care sector where inflated liability premiums negatively affect patients, end up hurting families and businesses," said Stambaugh.
On October 10, Pennsylvania legislators convened at the state capitol to underscore the urgent need for tort reform. The group highlighted the detrimental impact of escalating legal costs and litigation risks, known as "social inflation," on the state’s economy and public services.
Fitch Ratings has reported that reinsurers are set to implement double-digit increases in U.S. casualty premium rates by January 2025. This adjustment aims to address insufficient coverage against the rising loss costs fueled by social inflation.
During mid-2024 renewals, premium hikes of up to 15% were recorded for loss-affected accounts, yet these were still inadequate to offset the surge in claim expenses.
The driving forces behind these rate adjustments include larger jury verdicts, increased attorney involvement, and the growing litigation funding sector. Such factors are contributing to a spike in claims, with payouts frequently exceeding $10 million. This escalation is exerting pressure on reinsurers, prompting them to negotiate for further hikes and to reduce cover limits and quota-share commissions.
Market dynamics are also shifting as major reinsurers like Munich Re and Swiss Re scale back their U.S. casualty operations. With the demand for reinsurance still high, this retreat is contributing to a widening gap between supply and demand, increasing pricing pressures across the board.
Social inflation refers to the rising costs of insurance claims driven by factors such as increased litigation, larger jury awards, more frequent attorney involvement, and the growing influence of third-party litigation funding.
According to Swiss RE, social inflation in the U.S. reached 7% in 2023, the highest in 20 years, which is "driving large settlements" and increasing liability claim costs beyond economic inflation rates.
Swiss RE reports that social inflation led to $43 billion in underwriting losses over five years, "significantly reducing available capacity for businesses" in the U.S..