Morgan Stanley has expressed growing concerns surrounding social inflation, predicting it to be a significant headwind for the insurance industry throughout 2024.
The firm, in a news report from Reinsurance News at the weekend, noted that based on the last decade of state-level civil court data, the increasing importance of newer court cases in understanding the impact of social inflation informed the forecast.
According to the financial institution, despite improvements in case clearance rates, the rising jury awards and settlement amounts, particularly in the post-COVID era, will continue to pose challenges for the industry.
The report highlights two key themes that are expected to shape the landscape of social inflation in 2024 namely, while the number of new cases has seen manageable growth, the focus shifts towards the escalating settlement amounts and jury awards.
Morgan Stanley further noted that these factors indicated a persistent and potentially worsening scenario for social inflation.
It, however, reported that despite the ugly scenario, the number of incoming cases in 2022 grew by approximately 5% year-on-year, with preliminary data for 2023 showing a further 7% increase.
The firm’s findings also reflected that the number of cases remained below pre-COVID levels and anticipates this trend to persist into 2024.
However, the firm clarified that the negative aspect remained in the noticeable increase in jury awards and settlement amounts.
Specifically, it found that preliminary data for 2023 showed that the average jury award amount was approximately $57,000, a slight decrease from 2022 but still marking only the second year since 2012 with awards surpassing $50,000.
Also, the report reflected that average settlement amounts rose by about 3% to roughly $37,600 for total civil cases in 2023, primarily due to the high settlement rate of around 81% to companies’ desire to avoid jury trials.
Morgan Stanley suggested that the persistently high litigation costs would likely lead to a prolonged impact from social inflation, with a shift in focus towards the more recent vintage of court cases.
Despite some improvements in case clearance rates, it maintained that the concern remained substantial, particularly in states like California, which has a relatively low case clearance rate of 56% in 2022.
