top of page

How Social Inflation Hurts Home Insurance Rates

Updated: Jul 27, 2022

You've often seen social inflation in action in the news but may not know just what it is and how it affects home insurance rates. Here's what you should know.

What is Social Inflation?

Metal scale with money on high end to the left and justice gavel on lower end to the right signifying social inflation

Simply put, social inflation is the rising cost of insurance claims based on a variety of factors, including:

  • An increase in the number of litigants willing to file lawsuits with the expectation of higher compensation, fueled in part by a greater division or separation of wealth

  • Rollbacks of tort reforms intended to control costs

  • Legislatures retroactively extending or repealing statutes of limitations

  • Lawyers advertising class action suits and their involvement in more liability claims

  • A general anti-corporate sentiment going back to the financial crisis

  • A widespread belief that "someone needs to pay" when there is damage or injury sustained, regardless of negligence

  • More plaintiff-friendly jury decisions

  • Larger compensatory jury awards

  • Probably lack of understanding by juries on how their large awards impact all insurance companies and their policyholders, not just the penalized plaintiffs and their insurers

The Insurance Information Institute ( defines it as "the rising litigation costs and their impact on insurers' claim payouts, loss ratios and, ultimately, how much policyholders pay for coverage."

Recent incurred losses due to social inflation have accelerated rapidly in the last five to six years—much more than in the preceding five to six years —and far more quickly than economic inflation would suggest or explain. In fact, from 2015 to 2020, the median cost of a jury award over $10 million increased by 35%, from $20 million to $27 million. This upward trend is forecast to continue.

Trickle Down Effect

There are four main areas of insurance that are absorbing the brunt of social inflation: commercial auto, medical malpractice, product manufacturing, and the umbrella and excess liability arena.

Unlike Mutual Assurance Society, most insurance companies cover several lines, including home, auto, life, and liability. When decisions outside of the liability limits in each area are awarded, these companies must pass these costs on to policyholders to meet shareholder expectations and company obligations.

Mike Hudzik, managing director, head of casualty underwriting, US & Canada for Swiss Re, points out, "In the excess liability towers, pretty much anything is fair game. Any kind of product liability, or even a slip and fall nowadays can result in claim payments that are astronomical compared to what they used to be worth. As a result, we've seen increases in rates in impacted lines" and most other coverage areas.

How this impacts Home Insurance

Social inflation impacts home insurance rates in two ways. Reinsurance rates and umbrella/liability payments.


Home insurance providers have their own insurance called reinsurance. Reinsurance is the practice of one or more insurers assuming another insurance company's risk portfolio in an effort to balance the insurance market. In other words, Mutual Assurance has reinsurance to help in the event a catastrophic event, like Hurricane Isabel, damages a great many members' homes. Rather than deplete our resources, we rely on this insurance to cover our claims above a specific amount.

Most reinsurers don't handle only home insurance. They cover insurance providers who protect corporations, manufacturers, medical practitioners, and commercial auto businesses – the most litigated areas. When their costs increase due to social inflation, they must pass that along to their customers, like Mutual Assurance. "It's the cost of doing business in the insurance market," Hudzik says.


Pain and suffering. Putting a value on this is, according to most actuaries, nearly impossible. When a car accident victim goes to court to get medical expenses and pain and suffering compensation, juries are more inclined to offer well above the limits set in an insurance policy. Pain and suffering awards have increased 19% in the past two years, from an average of $18,417 to almost $22,000. The more severe and long-lasting the injury, the higher the award. In 2020, there were over 107,000 car accidents with 65,000+ injuries. If only half of those went to court and were rewarded the average, that is $715 million insurance companies must absorb.

One of the highest areas of liability for homeowners (in addition to on-property injuries and car accidents) is dog bites and other dog-related injuries. Home insurance providers have seen a significant increase in the number and cost of these awards in recent years. In 2021 alone, more than one-third of all homeowners liability claim dollars fell into this category, costing $881 million. Over the past ten years, there has been a steep increase (39 percent) in cost per claim – the highest in any decade on record.

This increase is "no doubt due to increased medical costs, as well as the size of settlements, judgments, and jury awards given to plaintiffs," said Janet Ruiz, director of Strategic Communication at Triple I (Insurance Information Institute).

Social inflation impacts more than Insurance Rates

The largest jury awards are typically against corporations and manufacturers with perceived deep pockets. For example, Johnson & Johnson, facing more than 25,000 lawsuits for its Baby Powder's carcinogenic properties, set aside more than $3.5 billion in 2021 for litigation and settlement costs, representing 4.3% of its gross income. This is more than double the amount they set aside the previous year.

While Johnson & Johnson has been reported to profit by more than $766 million on its Covid vaccine, the need to keep shareholders content with increasing dividends and the increased cost of doing business. The gap is passed on to consumers in price increases on everyday necessities such as Tylenol, Benadryl, and Band-Aid brands.

Can anything be done?

Corporations have scores of employees dedicated to lobbying, analyzing, and defining insurance laws and coverages to try and mitigate the ever-growing threat of social inflation.

Mutual Assurance's business model is one that many other insurance companies should probably copy but may never be in a position to do so.

By carefully inspecting every home under membership consideration, Mutual identifies and limits the risks the Society and its members face. We follow up with our assureds to see that loss control recommendations are met, and risk factors such as overhanging trees, uneven sidewalks, sturdy railings, and yes, no trampolines are addressed. This decreases the chance of accidental falls or injuries, reducing litigation risk.

The Homeowner's Questionnaire that we send out is designed to ensure coverage needs are being met and no other risks have been assumed. Given the impact of dog-related injuries on insurance in recent years, now you know why we ask how many you have on this form.

We also know that our members understand their responsibility to the Society as well as our commitment to protecting their homes and families. This "mutual" relationship protects us from bearing the brunt of "social inflation."


Sources:, Insurance Information Institute, Business Insider, Johnson & Johnson, Insurance Journal,,, NuProperty Casualty 360



Rated 0 out of 5 stars.
No ratings yet

Add a rating
bottom of page