Analysts at Jefferies have said that tort reform may be needed to resolve the underlying problems of social inflation in the US.
Responding to recent analysis by Swiss Re Institute, Jefferies argued that historically social inflation has only been resolved with tort reform.
Swiss Re believes that social inflation in the US is set to continue, driven by multiple factors such as plaintiff/defendant bar tactics, litigation funding, social attitudes, inequality and court leaning.
Social Inflation refers the increase in frequency and severity of court awards, most notably in the US.
As these awards are often covered by casualty insurance, higher inflation has an impact on the industry’s profitability and the price of new business.
According to Swiss Re, the trend of social inflation is set to continue for at least the next couple of years, as the underlying societal factors driving it appear to have become more acute.
Jefferies compared this situations to the 1970s, when a spiral of claims inflation in medical malpractice business drove high price rises for several consecutive years, making the cover unaffordable for many.
“The crisis was only ended when tort reform halted claims inflation,” analysts at Jefferies noted.
“In our view, tort reform will probably be necessary again, with perhaps the best approach being to leave jury’s responsible for deciding innocence and letting professional judges set the payout,” they added. “This would be in line with most judicial systems globally.”