We’ve seen some jaw-dropping liability claim settlements against big business in recent years. Just recently, corporate giant Johnson & Johnson was slapped with a whopping $8 billion products liability settlement for failing to sufficiently warn doctors of the side effects of the antipsychotic medication Risperdal.
These types of lawsuits and big jury awards are on the rise, in part because public sentiment toward big corporations has soured over the years. When something goes wrong, we like to blame somebody – preferably somebody with deep pockets. So the average American is more amenable to big jury awards. After all, big businesses and their insurance companies can afford it, right? That’s a common attitude.
This increasing hostility toward big corporations is a key element in what the insurance industry calls Social Inflation – and it’s affecting your insurance rates.
Society’s views and attitudes about increased litigation, higher jury awards, workers’ comp benefits, and tort reform have changed over the years. And those changing attitudes have led to rising insurance claim costs, which ultimately affects insurance rates.
What’s behind the social inflation trend? Besides hostility toward big business, there are several other factors driving it:
- A ubiquitous media. Every big headline news event has the potential to create a public reaction. And with a 24/7 news cycle and the explosion of social media, reactions are swift and often ruthless. The media plays a huge role in keeping people informed of critical issues, and they can have a major influence on jurors’ perceptions of the proper settlement to be extracted from irresponsible businesses.
- Desensitization to the value of money. We’ve become so desensitized to the value of a dollar that juries often feel a sky-high monetary award is the only thing that will send a message effectively enough.
- Litigation funding. Increasingly, there’s a third party involved in lawsuits – a litigation financier. That’s a company that agrees to cover all or part of the costs of litigation or arbitration in return for a percentage of the settlement. It’s a growing industry, and it’s pushing up the volume of cases.
- Wavering tort reform. Many states have enacted tort reforms over the past 25 years, resulting in fewer claims and caps on non-economic and punitive damages. But in some states, certain portions of tort reform legislation are being modified or challenged on constitutional grounds, with some being thrown out altogether.
- Skyrocketing medical costs. Between rising costs for medical care and longer lifespans even in critical cases, jury awards are increasingly considering the costs of long-term critical care for injured plaintiffs.
All these trends add up to one thing for insurance carriers – greater cost to insure risks. And that inevitably means higher insurance premiums for businesses like yours.
How do you protect your business from the growing risk of social inflation?
- Stay on top of your employment practices liability (EPL) risks. Regularly review and update your employee handbook, especially your employment practices and sexual harassment policies. And don’t forget to carry adequate employment practices liability insurance (EPLI).
- Consider an umbrella policy for extra protection. Given our increasingly litigious culture, your standard business insurance policy likely won’t be enough to cover a settlement from a big lawsuit. An umbrella policy will give you the extra coverage you need – and some peace of mind.
- Partner with the right insurance carrier. An insurance agent that understands your industry, your business, and your unique risks is an invaluable partner, one that can help you better manage your risks and be prepared for the worst.
Need more tips on managing your risks? Contact the risk management specialists at BNC Agency.