Social Inflation and Loss Development – An Update

In a previous CAS Research Paper, we described a method for using industrywide loss development factors to detect circumstances consistent with descriptions of a phenomenon known as social inflation. The paper focused primarily on commercial auto liability insurance as defined in Schedule P of the Annual Statement. We estimated that social inflation increased commercial auto liability claims by more than $20 billion between 2010 and 2019.

This paper extends our analyses through the end of 2021, focusing again on commercial auto liability. We find that one metric for detecting excessive claims inflation, the calendar year 12–60-month loss development factor (abbreviated as the CYR 12-60 LDF) decreased significantly after calendar year 2019. The 2020 and 2021 factors were at levels consistent with 2016 and 2017. We believe the decrease was driven primarily by the pandemic, in part, due to slowdowns in tort dispositions and backlogs in cases. That the CYR 12-60 LDF remained significantly higher than a decade earlier is evidence that a certain level of social inflation remains baked into industry results, even in 2020 and 2021. We estimate that social inflation increased commercial auto liability estimates by more than $30 billion between 2012 and 2021, with most of the increase coming from the addition of 2020 and 2021 to the analysis.

This research paper is a collaboration between Triple-I and Casualty Actuarial Society (CAS).