Crawford’s Blanco: Social inflation broadening beyond the US

While the impact of social inflation has so far largely been confined to the US, the trend is beginning to pick up elsewhere around the world as third-party litigation funding extends its reach, Crawford & Company president Joseph Blanco has warned.

Talking to The Insurer TV’s Close Quarter, Blanco outlined how social inflation – a trend where claims costs rise at a level beyond economic inflation – has so far mostly been seen within the US, in part because of the country’s litigation system.

But as the executive noted, third-party litigation – which allows hedge funds and other investors to support plaintiffs’ attorneys during litigation – is now beginning to escalate worldwide.

“Between 2015 and 2019, we had about a 2 percent increase in securities related litigation in the United States. During that same period, it increased 15 percent worldwide,” stated Blanco.

Referencing a report from Swiss Re, Blanco said 65 percent of securities-related litigation is now being funded by third parties.

“That's not a surprise, because we do feel like that's a lot of what is really driving these trends,” said Blanco.

The Crawford executive pinpointed Australia as having seen a significant increase in activity from third-party litigation funders, although he forecast its influence will soon extend to other regions too.

“[Third-party litigation funding] is really becoming an industry, and industry will look for markets,” he said.

“I think as the funding continues, you will also see pressure from some of these groups to make what they will call reforms in many litigation systems around the world, which will make them more conducive to the very factors that are giving rise to social inflation,” Blanco warned.

In response to the rising threat posed by litigation funding, Blanco said it is “absolutely critical” that insurers apply more rigorous approaches to understanding their potential liability exposures.

“These trends are not easy to spot right away,” said Blanco.

“And so it really requires the same kind of data analytics that the organized litigation funders are using to look at cases, to really look at entire books, to really understand what trends are going on around the industry, and to use those in predictive models.

“It requires reserving at different levels, and really getting into the granular details of what is going on across the industry,” Blanco added.

Watch the 10-minute interview with Blanco to hear more on…