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Insurers under pressure from ‘social inflation’ in jury awards

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Dramatic impact: moderator Carla Greaves, centre, is flanked by panellists Donnacha Smyth, left, Nick Moore, Lindsay Roos and Kirsten Beasley, at the Emerging Risk and State of the Market broker event (Photograph by Duncan Hall)

Huge legal settlements and jury awards in the United States are having a dramatic impact on the strategies employed by underwriters and brokers in Bermuda, an international audience heard at a conference hosted by Axa XL.

Carla Greaves, global chief underwriting officer, excess casualty, at Axa XL, moderated a panel at the Emerging Risk and State of the Market broker event.

Reviewing a variety of recent settlements and jury awards, including a $1 billion settlement for the Surfside tower collapse in Miami and a $91 million jury award for a man who lost both legs in a storefront crash, she said: “This is what we are living as underwriters.”

Billion-dollar award: the Surfside Tower collapse in Miami

The insurance industry refers to the prevalence of such settlements and awards as social inflation, the rising costs of claims that cannot be accounted for by overall inflation rates.

The panel included Donnacha Smyth, head of excess casualty at Axa XL, Nick Moore, Aon Global excess casualty practice leader, Lindsay Roos, a managing director at Bowring Marsh, and Kirsten Beasley, head of office, Bermuda, for Willis Towers Watson.

Mr Smyth said: “As a Bermuda carrier, we have got finite levers that we can pull at any one point in time — it’s the limit we deploy, it’s where we deploy it, at what attachment point, the price we charge for it and the terms and conditions.

“In 2019, we pulled all those levers really, really hard. We right-sized the book, and we right-sized how we deploy our limit in the environment as we saw it there.”

Today, Mr Smyth said, insurers are being very cautious about limit deployment.

He added: “People say ‘now is the right time to grow’. It’s easy to grow in excess — you just put more limit out. I don’t think that is appropriate in this environment without meaningful tort reform, so we manage our limit across a broad portfolio while applying our data and analytics to continue to shift our portfolio to ensure that it is best placed to try and deliver underwriting contribution on a regular basis.”

Ms Roos said it is hard to nail down which industries and clients are more susceptible to “nuclear verdicts and the social inflation dynamic”.

She added: “Potentially, it’s clients that are selling closer to the consumer, interacting more closely directly with the consumer.

“So, service industry, healthcare, retail, in-home services — and the reason for that is because juries are more apt to look at those individuals, the alleged harmed consumers, as innocent plaintiffs, and then put out their nuclear, crazy awards.”

Mr Moore added: “Clients have to adapt their strategies — this isn’t going away, the social inflation, it’s continuing and it’s getting worse.”

He said plaintiffs’ attorneys have evolved their strategies.

“Now their goal is to make the juries angry. Look at this bad company, look at what they’re doing, they are hurting everybody, they are hurting people, they are damaging to society and they could be damaging to you.

“That sort of ‘reptile theory’ that we talk about is making jurors think about how bad these companies are — they are putting profits before safety.”

Mr Moore said his organisation is advising clients to implement and document all the procedures they are putting in place to show that they do care about the general public.

He added: “It’s not enough to say that you have these policies — you have to implement them and you have to document them.”

The conference attracted 150 delegates, including 60 brokers, from Bermuda, the United States and Britain.

Held in-person for the first time since the Covid-19 pandemic began to affect business operations worldwide, it included 11 fellows, or recent graduates, from the offices of Marsh USA.

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Published March 06, 2023 at 7:47 am (Updated March 06, 2023 at 8:57 pm)

Insurers under pressure from ‘social inflation’ in jury awards

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