Inflation is everywhere these days, both in and outside of insurance. But there’s another type of inflation having an oversized impact on umbrella and excess lines: social inflation.

“Social inflation” is the increasing costs of legal awards due to social pressure to award larger amounts to plaintiffs, along with the corresponding increased quantity of lawsuits. These growing costs add considerable expense to insurance claims for businesses of all sizes, particularly for umbrella, auto, and excess and surplus lines. There is a similar, but less severe, influence in personal auto as well.

As a result, insurance companies have been struggling with profitability and have been passing the resultant costs on to clients through rate increases. During the past few years, the pace of those rate increases has accelerated, and now some companies are considering pulling out of certain lines of business.

Companies can respond to this growing trend by becoming more agile and modifying their products in real-time in response to changing market conditions.