Bill McElroy Addresses Social Inflation and Litigation Challenges

Social inflation negatively impacts both customers and commerce, as it drives up premiums for everyone, and for many, these costs have become unsustainable.  

Bill McElroy, Portfolio Director of Casualty for Aspen discussed social inflation, litigation financing and the industry’s response, during the WSIA Conference in San Diego. 

During his interview with Meg Green of Insurance Insider U.S., Bill reminded us of the role of the civil justice system, explaining that its purpose is to right wrongs and compensate victims, however, those awards need to be better aligned with the fault and actual damage, to maintain fairness.  

Bill explained that, in insurance, every loss dollar begins with a premium dollar, and how clients react to that is especially important. He said there are clients who are now willing to concede liability before they report a claim, when it’s the carrier’s job to help defend them. And, when there are settlements without the carrier’s consent, that’s an indication there is a breakdown in the system. 

According to Bill, there needs to be a more balanced approach between the insured and the carrier, especially on large, complicated cases. Having good faith is one of the guiding principles in the insurance business and it can be easily forgotten that a carrier is not the only entity in an insurance transaction. Clients also need to act in good faith, and carriers should be included in defense strategies, claims evaluations and negotiations. This will ensure that the carrier does its job properly and, ultimately, will save the insured money. 

Bill also pointed to the need for the industry to be tackling litigation financing. For instance, juries, judges and arbitrators should be informed when there are outside economic influences that are at stake in a case and if, for example, a plaintiff has received litigation financing in exchange for a reduced award. 

In addition, there is the potential for implementing co-insurance, rather than deductibles or retentions, as a means of better aligning the interests in case management and facilitation of reporting. Perhaps, most importantly, the insurance industry needs to be more forthright in communicating the value it brings to its clients and to society, and to explain that value with pride, honesty and compassion.  

The opportunity is now to restructure the system so it can be fair, consistent and reasonable. Otherwise, the system could potentially break in the future and, as Bill noted, that would not be in anybody’s best interest if that were to happen. 

Watch the full video on Insurance Insider.