10.52227/26576.2023">
 

Document Type

Article

Publication Date

2023

Abstract

This paper brings a critical eye to the current conversation about "social inflation," reaching the conclusion that the current calls for legal system reform--whether that be controls on attorney advertising, clamping down on litigation financing, revisiting of fee recovery rules, or other similar reform proposals--currently lack the empirical support and analytical comprehensiveness for. regulators and legislators to act with confidence that the requested reforms will do more good than harm. In a variety of States, insurance premiums are rising faster than general inflation, some insurers are becoming insolvent, and some insurers are leaving markets entirely. Insurers are pointing to social inflation as a major cause. "Social inflation" is the terminology for the assertion that lawyers, litigation financers, contractors, and other opportunists including perhaps policyholders themselves, are increasingly causing insurers to overpay claims and incur unwarranted LAE, often in litigation settings where the problem is exacerbated by gullible jurors and changing societal attitudes toward businesses and insurance companies. This paper explores several potential concerns with the arguments for legal system reform. Three concerns in particular are whether the literature adequately not only models the possible benefits to insurers of legal system reforms, but also the possible harm to consumers; whether the literature adequately explains why the proposed reforms are likely to be more successful than prior reform efforts; and whether there is yet sufficient development of the social inflation argument to act on it.. This paper concludes that so far, there is not enough data for a regulator or legislator to confidently embrace further legal system reform. The reforms may be advisable. But it is too soon to tell, and there is significant risk that the reforms would do more harm than good.

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