Casualty Reinsurers Are Addressing Escalating Litigation Risk Across U.S.

In a feature story with Insurance Business America, Meghan DiBona, Vice President and Casualty Facultative Manager, at Aspen Reinsurance, explained how social inflation in the United States is impacting the casualty facultative reinsurance market and how reinsurers are addressing escalating litigation risk.

Social inflation is the rising costs associated with insurance claims and legal liabilities and is driven by such factors as increased litigation, larger jury awards, aggressive legal strategies and changing societal attitudes. 

In such high-risk industries as product liability and trucking, Meghan commented that “underwriters in the industry are requesting more detailed exposure information” where risks are layered and often involve heavy litigation resulting in plaintiffs awarded outsized damages. These settlements are also known as nuclear verdicts, whereby the plaintiff receives an exceptionally disproportionate award by the jury that far exceeds the actual economic damages. In addition, these damage awards and settlements are increasing significantly faster than the underlying rate of real economic inflation, thus creating social inflation.

Social inflation and nuclear verdicts have led to higher prices and less appetite by reinsurers, and underwriting is becoming more a collaborative effort as the industry looks to adjust. “Underwriting teams now often work closely with claims, actuarial, and legal teams to better anticipate emerging trends,” said Meghan.

Meghan also noted that facultative capacity is harder to find and more fragmented as placements might need to be covered by multiple carriers. “Facultative reinsurers in our industry are reducing their exposure in this unpredictable legal environment by limiting capacity deployed.”

Although she is seeing a shift, a big plus of writing facultative reinsurance is the flexibility it offers since it is written risk by risk, unlike treaty business. “Facultative reinsurance involves pricing each account individually,” Meghan said. “It tends to be the more challenging risks that go out to the facultative markets.”

Read more of Meghan’s comments on why facultative reinsurance – once reserved for tougher risks that didn’t fit in treaties – is changing how and where underwriters can write business and establishing boundaries for what the market can tolerate in this volatile landscape.

https://www.insurancebusinessmag.com/reinsurance/news/breaking-news/casualty-reinsurers-are-addressing-escalating-litigation-risk-across-the-us-556159.aspx