Social inflation, a trend marked by rising verdicts and litigation costs that outpace general economic inflation, is increasingly affecting businesses and insurers in the United States. This phenomenon is characterized by large jury awards, often referred to as “nuclear verdicts,” which typically exceed $10 million.
Between 2016 and 2022, tort costs in the U.S. grew at an average annual rate of 7.1%, surpassing both the average annual inflation rate of 3.4% and GDP growth of 5.4% during the same period. According to a May 2024 study from the U.S. Chamber of Commerce Institute for Legal Reform, about half of nuclear verdicts between January 2013 and December 2022 ranged from $10 million to $20 million; over one-third were between $20 million and $50 million, while 19 percent exceeded $50 million. There were also 115 verdicts of $100 million or more within this timeframe.
The study found that product liability cases have seen median nuclear verdict values rise by 50% from 2013 to 2022. Four states—Florida, California, Texas, and New York—accounted for half of these large verdicts.
Insurers are feeling the impact through increased claims costs across multiple lines such as automotive liability, product liability, commercial liability, and professional liability. For example, a study attributed approximately $20.7 billion in commercial auto losses from 2010 to 2019—about 14% of total claims paid—to factors not explained by standard economic inflation.
Declining underwriting profitability has been noted as claim payouts continue to grow faster than revenue for insurers. Casualty underwriters must manage long-developing claims like those related to asbestos or opioids alongside current claims.
Three main drivers are cited for social inflation: greater use of third-party litigation funding (TPLF), changing public attitudes toward corporations, and psychological tactics used by plaintiffs’ attorneys during trials.
The United States holds a dominant position in TPLF markets with a global share of about 52%. The Swiss Re Institute reported in December 2021 that TPLF increases the frequency of large claims and litigation costs while reducing insurability.
Public sentiment towards corporations has shifted negatively; a Pew Research survey indicated that about seven out of ten American adults believe corporations negatively affect the country’s direction. This attitude is expected to persist as younger generations make up more jury pools.
Additionally, people’s perceptions regarding money have changed due to frequent exposure to high figures in media reports about settlements or business deals. A YouGov survey revealed that many Americans overestimate how many households earn very high incomes compared with actual census data.
Plaintiffs’ attorneys have increasingly relied on psychological strategies such as “reptile theory”—which encourages jurors to empathize with plaintiffs—and “anchoring,” where they suggest very high damage awards to influence expectations around compensation amounts. Courts generally disfavor reptile theory tactics but require defense objections before intervening; few jurisdictions restrict anchoring unless numbers presented are arbitrary.
Despite these challenges, businesses and insurance professionals are developing strategies such as early resolution efforts and clearer trial themes aimed at encouraging juries to focus on factual evidence rather than emotion-driven arguments. Some states have enacted tort reform measures targeting insurance markets in response to these trends even as others roll back caps on noneconomic damages.
“While the above may paint a grim picture of the escalating trends of social inflation and nuclear verdicts, there is no denying that businesses, insurance professionals, and defense attorneys are aware of the issues at this point. Defense attorneys have strategies in place to combat both social inflation and nuclear verdicts, including looking at early claims resolution, defining clear litigation strategies at the start of litigation, and developing strong trial themes to convince juries to follow the facts rather than their emotions. Additionally, while the supreme courts of many states have recently rolled-back prior legislation limiting or capping noneconomic damages, others, such as Florida and Texas, have recently enacted tort reform measures specifically aimed at insurance markets in an effort to alleviate their status as ‘judicial hellholes.'”
For ongoing updates on developments related to social inflation trends impacting casualty markets across regions or emerging risks identified by industry experts like Clyde & Co., interested parties can subscribe for email notifications via their website.