This article describes social inflation and its impact, what umbrella insurance covers and why it’s crucial in the age of social inflation. Three claim scenarios illustrate the value of umbrella insurance. The article also notes four risk-management strategies to mitigate the impact of social inflation.

Understanding social inflation and its impact

Unlike traditional inflation, social inflation stems from behavioral and legal shifts. Some contributing factors:

• Public sentiment. As public attitudes toward corporate accountability have shifted, juries are increasingly skeptical of corporations and are willing to award punitive damages.
• Erosion of tort reform. These legal changes have made it easier for plaintiffs to sue and win large awards.
• Third-party funding of litigation. Some investors finance lawsuits in exchange for a share of the settlement, which encourages more aggressive litigation.

Social inflation is driving increased litigation and large jury awards. Awards exceeding $10 million, known as “nuclear verdicts,” are becoming more common, especially in emotionally charged cases.

Worryingly, exponentially larger “thermonuclear awards” of at least $100 million are also increasing. In 2024, the trucking and automotive industries alone experienced 15 verdicts with jury awards of more than $1.4 billion, according to “Corporate Verdicts Go Thermonuclear,” a study by Marathon Strategies.

Because of social inflation, liability claims in the U.S. increased 57 percent over the decade that ended in 2023, according to research by the Swiss Re Institute.

What umbrella insurance covers and why it’s crucial in the age of social inflation

Umbrella insurance provides additional liability coverage beyond the limits of general liability, auto, and employer’s liability policies. It also covers:

• Legal defense costs
• Settlements and judgments
• Certain claims excluded from base policies

Having umbrella insurance is important because standard policies often fall short in the face of nuclear verdicts. Umbrella insurance protects organizational assets from being liquidated to satisfy judgments. It also helps manage reputational risk by ensuring claims are resolved without financial collapse.

Three claim scenarios that illustrate the value of umbrella insurance

These scenarios are illustrative and are provided for general educational and informational purposes only. These scenarios are not intended to be a substitute for professional insurance or legal advice. You are encouraged to discuss the issues raised here with your legal and other advisors before determining how the issues apply to your specific situation(s).

Risk-management strategies

To mitigate the impact of social inflation, organizations should consider their risk exposures and risk profile when evaluating their liability, property and commercial automobile insurance program:

• Review and update coverage limits annually to reflect current legal risks.
• Conduct liability exposure assessments with a qualified broker to identify vulnerabilities.
• Educate leadership on emerging legal trends and jury behavior.
• Collaborate with legal and insurance advisors to tailor umbrella policies to your specific risks.

In today’s climate, you can’t afford to go without umbrella insurance

Social inflation is reshaping the liability landscape, driving up claim costs and increasing the unpredictability of jury verdicts.

Umbrella insurance offers a vital layer of protection, helping organizations navigate this volatile environment and safeguard their future.