In a recent report by Morgan Stanley’s analyst team, it’s estimated that social inflation caused $13.3-24.5 billion of excess losses for commercial auto liability from 2013-2022, accounting for 7-13% of total losses in the period.
On an annual basis, excess social inflation exceeded expected loss assumptions by 3-15%, under Morgan Stanley’s base case.
Morgan Stanley analysts note, “This leads us to believe that the commercial auto industry as a whole may have consistently underestimated the impact of social inflation.”
While there was a partial reversal in 2021 and 2022, the trend of social inflation has been deteriorating since 2019. However, these improvements may be temporary, possibly influenced by economic inflation and post-COVID impacts.
As settlements and jury awards continue to rise, contributing to an overall increase in civil cases, social inflation remains a persistent concern.
As a result, insurance companies have been compelled to raise premiums on commercial auto insurance policies, a trend expected to persist and potentially lead to higher costs for businesses and consumers alike.
Morgan Stanley’s research underscores the critical need for the commercial auto industry to reassess its risk management strategies and pricing models in response to the ongoing challenges posed by social inflation.
In summary, social inflation has had a significant and enduring impact on the commercial auto liability sector, highlighting the importance of proactive measures to mitigate risks and adapt to evolving market conditions.
