Social inflation continues to threaten liability insurers
Expected range for rate changes next quarter1
1Note: Rate ranges presented here reflect expected renewal outcomes — as of the Lockton Market Update publication date — over the next quarter for most insurance buyers. These should not be taken as a guarantee of any specific results during renewal negotiations. Depending on risk profiles, loss histories, account specifics, and other factors, individual buyers may renew their programs outside these ranges.
Continuing a pattern that has become all too familiar, liability premiums continue to rise, driven by escalating loss trends. According to data from the Council of Insurance Agents & Brokers (see Figure 9), general liability rates rose 5.3% on average in the fourth quarter, and auto liability rates rose 8.9% on average.2
2Charts in this report using Lockton P&C Edge Benchmarking data show median rate changes year over year. Median figures, however, are not available for Figure 9, which uses data from CIAB.
Median lead umbrella price per million rose 9.7% in the fourth quarter, according to Lockton data (see Figure 10). Median excess casualty price per million rose 9.2% in the fourth quarter.
As social inflation reshapes the third-party liability landscape, insurance buyers face escalating losses, reduced market capacity, increased risk sharing, and soaring premiums. Once a highly predictable market segment, liability insurance remains volatile, driven by surging nuclear verdicts and a well-organized plaintiffs’ bar backed by third-party litigation funding. Certain high-risk industries, including trucking, construction, and healthcare continue to face unique challenges.
In the past, insurers have relied on historical loss experience to estimate reserves and set premiums. Amid social inflation, however, historical data has become an unreliable predictor of future risks. This has prompted a shift toward more conservative underwriting and deployment of capital. Insurers are carefully managing retentions, adjusting attachment points, restricting capacity, and tightening terms and conditions. At the same time, continued adverse reserve development is forcing insurers to reassess reserving strategies and adjust pricing models.
Occurrence-based policies, in particular, remain challenging. Insurers struggle to accurately predict, price, and reserve for losses that can take decades to emerge. “Reviver” statutes have further complicated the outlook for sexual abuse and molestation claims, reopening litigation for cases previously barred by statutes of limitations and triggering a surge in claims and settlements. Asbestos-related liabilities remain an ongoing problem, with litigation persisting despite decades of remediation efforts.
Insurers are also finding it difficult to underwrite and price a variety of emerging risks, for which historical loss data is often lacking. Concerns are building around algorithmic liability, biometric data, fossil fuels, electric vehicles and social media mental health claims, all of which are increasingly subject to litigation.
Similarly, insurers are worried about massive, unpredictable claims — as previously seen with asbestos — from litigation stemming from the widespread use of per- and polyfluoroalkyl substances (PFAS), also known as “forever chemicals.”
Meanwhile, so-called “judicial hellholes” — jurisdictions where courts consistently favor plaintiffs — are a significant challenge for insurers and businesses facing litigation. Tort reform remains a fragmented, state-by-state effort, with highly uneven progress. In 2023, Florida implemented substantial reforms, while as of this writing, Georgia’s legislature is advancing two bills intended to curb excessive litigation. Further progress will require strong, effective advocacy from consumers, businesses and insurers.
The Trump administration’s regulatory approach and staff cuts at key agencies could also increase uncertainty in oversight and enforcement. A shift away from the Biden administration’s aggressive focus on consumer protection may also present new risks.
These trends are prompting more rigorous underwriting guidelines from casualty reinsurers. Reinsurers are requiring more detailed actuarial experience data from cedents and are pressing them for more clarity on how they underwrite specific exposures. This puts more pressure on primary underwriting guidelines.
