A perfect storm of social inflation hitting liability classes: AM Best

Insurance classes with exposure to social inflation are some of those with the worst future outlooks for insurers.

That’s according to AM Best, which revealed the market sector outlooks it has assigned to various commercial lines in a presentation at the APCIA conference in Chicago yesterday (October 7).

The ratings agency has assigned a negative sector outlook to commercial auto, directors & officers (D&O) liability, general liability and title. 

Commercial property, medical professional liability, private mortgage insurers, surety, and workers’ compensation all received a stable rating, while excess & surplus lines was the only class to receive a positive sector outlook.

Discussing the market sector outlooks, Greg Williams, senior director at AM Best, said that the impact of social inflation has had a strong bearing on many of these assignments.

“If you think about social inflation, there are these sub-categories where we have negative outlooks, and it’s really tied to the liability portion,” he said.

“In commercial auto we don’t split between physical damage and liability, but that negative outlook is being driven by liability. Then you have D&O liability and general liability.”

“In D&O, calendar year results for the insurance sector have been good.”

Williams explained there were a number of different factors at play, all amplifying the effects of social inflation, and creating a “perfect storm”. 

“Think about attitudes towards large corporations; the advertising that attorneys are doing; and third-party litigation funding. You think about erosion of tort reform in specific states; COVID-19 and the backlog of court cases that are now coming through with larger verdicts,” he said.

“From a social inflation perspective it’s a perfect storm as we think about how in the longer term some of these casualty lines are going to perform.”

Williams recognised that in D&O, calendar year results for the insurance sector have been good. However, pricing has subsequently dropped in D&O, which he said had caused concern.

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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