Effects of Social Inflation & Nuclear Verdicts on Trucking Insurance
In recent years, the trucking industry has seen a decline in workers, stricter regulations on hours driven and a growing number of supply chain issues related to increased consumer demand and shipment delays.
Further compounding these issues, the cost of trucking insurance has been affected by social inflation and related factor nuclear verdicts. Learn how social inflation may be affecting your trucking insurance policy.
What Is Social Inflation?
In general, social inflation relates to increasing legal costs and the effects of litigation on insurance policies, including the cost of coverage in relation to a carrier’s estimated losses and claims payouts.
For commercial entities, the effects of social inflation vary. Companies with a long history, from certain industries and those perceived as sitting on significant funds have higher risks.
Industries more likely to be the subject of such legal rulings include commercial auto and trucking, product manufacturing, pharmaceuticals and any field with stricter professional liability standards, such as healthcare.
Social inflation can exert a greater impact on industries that take a reputational hit. For commercial trucking, an increased number of collisions due to reckless hiring practices and pushing employees to drive more hours have tarnished the industry’s reputation. From jury verdicts to payouts, litigation frequently favors the victim over the trucking company.
Along with these big-picture trends:
- How personal injury claims get evaluated is changing due to demographics. A younger juror pool is more likely to favor the plaintiff, which can lead to higher compensation and greater penalties for the defendant in court. The Insurance Information Institute and the Casualty Actuarial Society found that social inflation alone has been responsible for an additional $20 billion in commercial auto liability claims over the past 10 years. CLARA Analytics, Inc. also found that in 2018, the average verdict related to a commercial truck accident totaled to $22.3 million.
- Social inflation starts in the courtroom, with the plaintiff’s attorney frequently playing to the industry’s tarnished reputation. As a result, jurors are more likely to side with the plaintiff. Its assumed these industries have more extensive insurance limits, causing the plaintiff’s attorney and jurors to push for a larger payout.
- Outside factors further influence lawsuit financing, including litigation lending and the trading of lawsuit shares.
What Are Nuclear Verdicts?
Building off the points described above, nuclear verdicts are a form of social inflation. For the trucking industry, the American Transportation Research Institute (ATRI) found that from 2006 to 2019 the number of cases with plaintiff-leaning verdicts over $1 million increased from 26 for the first five years to 300 over the last five years.
CLARA Analytics additionally found that ultra-high or “nuclear” verdicts are rising. From 2014 to 2018, awards for the highest 50 single-plaintiff bodily injury claims nearly doubled from $27.7 million to $54.3 million.
For trucking companies, these verdicts are more than a major financial hit and, in certain cases, can bankrupt entities out of business. As the insurance company only pays out to a policy’s limits, an under-insured trucking company is responsible for the rest of the verdict.
Why the Trucking Industry Is a Target for Social Inflation
Trucking is a key element of the domestic supply chain. At least 70 percent of goods in the U.S. get transported by truck at some point. As a result, trucking appears to be a lucrative industry supported by corporations assumed to have deep pockets and therefore won’t be affected by a lawsuit.
Building off this scenario:
- Trucking accidents are nearly always serious, resulting in life-threatening or fatal accidents. In court, this scenario immediately comes to mind for jurors and the plaintiff’s attorney frequently plays to this assumption.
- Media coverage of large corporate payouts fuels the assumption that trucking companies have significant assets and should be penalized for their negligence. These assumptions increase the risk for a nuclear verdict.
- Trucking companies have a reputation tainted by years of negligence. Current supply chain issues, driver shortages and increasing turnover only exacerbate these notions.
How Trucking Companies Can Reduce Risks
To anticipate social inflation, nuclear verdicts and having to pay higher out-of-pocket costs, trucking companies are advised to:
- Implement safety and driver-tracking measures to capture more comprehensive data on behavior behind the wheel.
- Discipline drivers who behave in a reckless or unsafe manner during their routes and reward those who maintain their safety record.
- Thoroughly examine all potential hires during the application and onboarding processes, delineating all expectations for safe driving and monitoring upfront.
- Report all crashes and safety incidents, making sure to preserve all data and recordings.
- Increase their liability coverage.
Is your trucking company under-insured or looking for more sufficient liability coverage to get through a potential nuclear verdict? To discuss your options with a HUB/Ion Insurance agent, contact us today.