Professional liability coverage sees social inflation remaining
As published in .
Last year was a record year for inflated verdicts, with more than 23 surpassing $100 million, according to a report from the U.S. Chamber of Commerce Institute for Legal Reform. That鈥檚 nearly 400% more than 10 years prior, with the median settlement amount increasing 70% on average from 2012-2022. While product liability, commercial automobile and medical liability have seen more nuclear verdicts in recent years, the industry is starting to see professional liability lines impacted by this phenomenon as well.
While this trend is likely to prove costly for unprepared professional service providers, it also presents opportunities for independent insurance agents to serve as trusted advisers to their clients and to offer valuable guidance to help them minimize their exposures.
Drivers of social inflation
While social inflation first affected larger organizations, it is now also impacting smaller entities. This comes at a time when external investors are funding lawsuits, slowing down the judicial process and raising litigation costs. With external investors providing the capital needed for robust legal cases, such as funding for experts, reasonable and early settlements become less likely. And ultimately, third-party litigation funding can actually reduce the amounts injured parties receive, while simultaneously driving up the cost of the settlement. And, once a high settlement is reached, it can set a precedent for future cases.
For professional service providers, allegations of errors, negligence or misrepresentation can prove costly. Many customers of these professional services firms have become accustomed to quick results, leading to more transactional relationships. At the same time, it can lead to unintended mistakes and, given the lack of business relationships, clients are more inclined to file suits and less likely to engage in mediation.
Protecting professional service providers
Industry groups are working to advocate for reforms, but in the meantime, legal system abuse continues to create challenges for our industry and for our customers. The good news is an overwhelming majority of professional service providers rely on independent agents for advice鈥攁 testament to the important role agents play in our complex industry. Independent agents can encourage clients to take steps to manage these evolving loss trends and defend against the risks of social inflation. For example, professional service providers can:
- Use clear and explicit letters of engagement. An engagement letter can help discourage a client from asserting a meritless claim and can be useful in defending such a claim by establishing a legal framework for the relationship with a client.
- Verify that independent contractors are explicitly listed as insured parties. Anyone doing work on behalf of the client, including contractors and temporary employees, should be explicitly named as insureds in policy terms and conditions.
- Acquire coverage with ample limits. While clients should embrace proactive risk management to help mitigate potential losses, in the unfortunate event a lawsuit is made, robust limits are vital in helping ensure financial protection and resilience. Often, smaller clients may think $500,000 or $1 million limits are high enough, but these limits are often too low to protect a business, even a smaller one. While this offers obvious protection to the client, asking clients to explore higher limits protects the agency as well.
While the increasing frequency and severity of nuclear verdicts can cause some uncertainty for professional service providers, a focus on prudent risk management tactics and the right insurance protection can make all the difference. Social inflation will undoubtedly continue going forward, but this threat offers independent agents an excellent opportunity to demonstrate their unique value, helping their clients navigate this market with expert guidance and counsel, and protecting their businesses for years to come.
About the author
Gregory W. Leffard is senior vice president, president, professional and executive lines at 华体会.
Related resources
Professional liability coverage sees social inflation remaining
As published in .
Last year was a record year for inflated verdicts, with more than 23 surpassing $100 million, according to a report from the U.S. Chamber of Commerce Institute for Legal Reform. That鈥檚 nearly 400% more than 10 years prior, with the median settlement amount increasing 70% on average from 2012-2022. While product liability, commercial automobile and medical liability have seen more nuclear verdicts in recent years, the industry is starting to see professional liability lines impacted by this phenomenon as well.
While this trend is likely to prove costly for unprepared professional service providers, it also presents opportunities for independent insurance agents to serve as trusted advisers to their clients and to offer valuable guidance to help them minimize their exposures.
Drivers of social inflation
While social inflation first affected larger organizations, it is now also impacting smaller entities. This comes at a time when external investors are funding lawsuits, slowing down the judicial process and raising litigation costs. With external investors providing the capital needed for robust legal cases, such as funding for experts, reasonable and early settlements become less likely. And ultimately, third-party litigation funding can actually reduce the amounts injured parties receive, while simultaneously driving up the cost of the settlement. And, once a high settlement is reached, it can set a precedent for future cases.
For professional service providers, allegations of errors, negligence or misrepresentation can prove costly. Many customers of these professional services firms have become accustomed to quick results, leading to more transactional relationships. At the same time, it can lead to unintended mistakes and, given the lack of business relationships, clients are more inclined to file suits and less likely to engage in mediation.
Protecting professional service providers
Industry groups are working to advocate for reforms, but in the meantime, legal system abuse continues to create challenges for our industry and for our customers. The good news is an overwhelming majority of professional service providers rely on independent agents for advice鈥攁 testament to the important role agents play in our complex industry. Independent agents can encourage clients to take steps to manage these evolving loss trends and defend against the risks of social inflation. For example, professional service providers can:
- Use clear and explicit letters of engagement. An engagement letter can help discourage a client from asserting a meritless claim and can be useful in defending such a claim by establishing a legal framework for the relationship with a client.
- Verify that independent contractors are explicitly listed as insured parties. Anyone doing work on behalf of the client, including contractors and temporary employees, should be explicitly named as insureds in policy terms and conditions.
- Acquire coverage with ample limits. While clients should embrace proactive risk management to help mitigate potential losses, in the unfortunate event a lawsuit is made, robust limits are vital in helping ensure financial protection and resilience. Often, smaller clients may think $500,000 or $1 million limits are high enough, but these limits are often too low to protect a business, even a smaller one. While this offers obvious protection to the client, asking clients to explore higher limits protects the agency as well.
While the increasing frequency and severity of nuclear verdicts can cause some uncertainty for professional service providers, a focus on prudent risk management tactics and the right insurance protection can make all the difference. Social inflation will undoubtedly continue going forward, but this threat offers independent agents an excellent opportunity to demonstrate their unique value, helping their clients navigate this market with expert guidance and counsel, and protecting their businesses for years to come.
About the author
Gregory W. Leffard is senior vice president, president, professional and executive lines at 华体会.
Related resources
Professional liability coverage sees social inflation remaining
As published in .
Last year was a record year for inflated verdicts, with more than 23 surpassing $100 million, according to a report from the U.S. Chamber of Commerce Institute for Legal Reform. That鈥檚 nearly 400% more than 10 years prior, with the median settlement amount increasing 70% on average from 2012-2022. While product liability, commercial automobile and medical liability have seen more nuclear verdicts in recent years, the industry is starting to see professional liability lines impacted by this phenomenon as well.
While this trend is likely to prove costly for unprepared professional service providers, it also presents opportunities for independent insurance agents to serve as trusted advisers to their clients and to offer valuable guidance to help them minimize their exposures.
Drivers of social inflation
While social inflation first affected larger organizations, it is now also impacting smaller entities. This comes at a time when external investors are funding lawsuits, slowing down the judicial process and raising litigation costs. With external investors providing the capital needed for robust legal cases, such as funding for experts, reasonable and early settlements become less likely. And ultimately, third-party litigation funding can actually reduce the amounts injured parties receive, while simultaneously driving up the cost of the settlement. And, once a high settlement is reached, it can set a precedent for future cases.
For professional service providers, allegations of errors, negligence or misrepresentation can prove costly. Many customers of these professional services firms have become accustomed to quick results, leading to more transactional relationships. At the same time, it can lead to unintended mistakes and, given the lack of business relationships, clients are more inclined to file suits and less likely to engage in mediation.
Protecting professional service providers
Industry groups are working to advocate for reforms, but in the meantime, legal system abuse continues to create challenges for our industry and for our customers. The good news is an overwhelming majority of professional service providers rely on independent agents for advice鈥攁 testament to the important role agents play in our complex industry. Independent agents can encourage clients to take steps to manage these evolving loss trends and defend against the risks of social inflation. For example, professional service providers can:
- Use clear and explicit letters of engagement. An engagement letter can help discourage a client from asserting a meritless claim and can be useful in defending such a claim by establishing a legal framework for the relationship with a client.
- Verify that independent contractors are explicitly listed as insured parties. Anyone doing work on behalf of the client, including contractors and temporary employees, should be explicitly named as insureds in policy terms and conditions.
- Acquire coverage with ample limits. While clients should embrace proactive risk management to help mitigate potential losses, in the unfortunate event a lawsuit is made, robust limits are vital in helping ensure financial protection and resilience. Often, smaller clients may think $500,000 or $1 million limits are high enough, but these limits are often too low to protect a business, even a smaller one. While this offers obvious protection to the client, asking clients to explore higher limits protects the agency as well.
While the increasing frequency and severity of nuclear verdicts can cause some uncertainty for professional service providers, a focus on prudent risk management tactics and the right insurance protection can make all the difference. Social inflation will undoubtedly continue going forward, but this threat offers independent agents an excellent opportunity to demonstrate their unique value, helping their clients navigate this market with expert guidance and counsel, and protecting their businesses for years to come.
About the author
Gregory W. Leffard is senior vice president, president, professional and executive lines at 华体会.
Related resources
Professional liability coverage sees social inflation remaining
As published in .
Last year was a record year for inflated verdicts, with more than 23 surpassing $100 million, according to a report from the U.S. Chamber of Commerce Institute for Legal Reform. That鈥檚 nearly 400% more than 10 years prior, with the median settlement amount increasing 70% on average from 2012-2022. While product liability, commercial automobile and medical liability have seen more nuclear verdicts in recent years, the industry is starting to see professional liability lines impacted by this phenomenon as well.
While this trend is likely to prove costly for unprepared professional service providers, it also presents opportunities for independent insurance agents to serve as trusted advisers to their clients and to offer valuable guidance to help them minimize their exposures.
Drivers of social inflation
While social inflation first affected larger organizations, it is now also impacting smaller entities. This comes at a time when external investors are funding lawsuits, slowing down the judicial process and raising litigation costs. With external investors providing the capital needed for robust legal cases, such as funding for experts, reasonable and early settlements become less likely. And ultimately, third-party litigation funding can actually reduce the amounts injured parties receive, while simultaneously driving up the cost of the settlement. And, once a high settlement is reached, it can set a precedent for future cases.
For professional service providers, allegations of errors, negligence or misrepresentation can prove costly. Many customers of these professional services firms have become accustomed to quick results, leading to more transactional relationships. At the same time, it can lead to unintended mistakes and, given the lack of business relationships, clients are more inclined to file suits and less likely to engage in mediation.
Protecting professional service providers
Industry groups are working to advocate for reforms, but in the meantime, legal system abuse continues to create challenges for our industry and for our customers. The good news is an overwhelming majority of professional service providers rely on independent agents for advice鈥攁 testament to the important role agents play in our complex industry. Independent agents can encourage clients to take steps to manage these evolving loss trends and defend against the risks of social inflation. For example, professional service providers can:
- Use clear and explicit letters of engagement. An engagement letter can help discourage a client from asserting a meritless claim and can be useful in defending such a claim by establishing a legal framework for the relationship with a client.
- Verify that independent contractors are explicitly listed as insured parties. Anyone doing work on behalf of the client, including contractors and temporary employees, should be explicitly named as insureds in policy terms and conditions.
- Acquire coverage with ample limits. While clients should embrace proactive risk management to help mitigate potential losses, in the unfortunate event a lawsuit is made, robust limits are vital in helping ensure financial protection and resilience. Often, smaller clients may think $500,000 or $1 million limits are high enough, but these limits are often too low to protect a business, even a smaller one. While this offers obvious protection to the client, asking clients to explore higher limits protects the agency as well.
While the increasing frequency and severity of nuclear verdicts can cause some uncertainty for professional service providers, a focus on prudent risk management tactics and the right insurance protection can make all the difference. Social inflation will undoubtedly continue going forward, but this threat offers independent agents an excellent opportunity to demonstrate their unique value, helping their clients navigate this market with expert guidance and counsel, and protecting their businesses for years to come.
About the author
Gregory W. Leffard is senior vice president, president, professional and executive lines at 华体会.