The rising phenomenon of “social inflation” – a term used to describe escalating insurance claims costs due to societal and legal trends – continues to reshape the global insurance landscape. According to Arthur J. Gallagher’s report Three Key Drivers of Social Inflation, the median cost of US jury awards exceeding $10 million, known as “nuclear verdicts,” reached $51 million in 2024, with 135 such cases recorded.
While nuclear verdicts have not reached Australia's court system the country is often cited as one of the most expensive legal markets after the US. Even without jury verdicts like the US, social inflation together with increasing third-party litigation financing - both cited in the Gallagher report - are playing a central role in a double digit rise in legal expenses Down Under.
Gallagher noted that, globally, social inflation is currently outpacing economic inflation, pressuring insurers and reinsurers to adjust pricing, reserves, and coverage limits. The report, citing research from the Insurance Information Institute (Triple-I) and Munich Reinsurance America, identifies three primary forces behind the trend: sympathetic juries, legal system abuse, and third-party litigation funding.
The first driver, sympathetic juries and societal trends, stems from shifting public attitudes toward corporations. “As society has become more distrustful of large companies, juries are seeking to use the courtroom as a means of punishing corporate America for perceived wrongdoing,” the report stated. These sentiments have led to larger verdicts and expanded definitions of liability.
The second factor, legal system abuse and the billboard effect, highlights how some attorneys use delay tactics, jury anchoring, and aggressive advertising to influence outcomes. Legal advertising alone exceeded $2.4 billion annually in the US, Gallagher reported. This “billboard effect” can heighten public awareness of litigation and indirectly encourage more lawsuits, particularly in the commercial auto and general liability sectors.
The third driver, third-party litigation funding, involves external investors – such as hedge funds and sovereign wealth funds – financing lawsuits in exchange for potential returns. The report noted that “a key issue in third-party litigation financing is when outside investors fund lawsuits, often without revealing their involvement,” creating transparency concerns.
Legislative action to regulate litigation funding is emerging. US states including Florida and Colorado have passed new laws, while in Europe, the European Commission and the UK’s Civil Justice Council have proposed “appropriate and proportionate regulation” to balance access to justice with market integrity.
“By encouraging more responsible legal practices and clearer rules, these reforms aim to protect everyone and create a more balanced system for resolving disputes,” said Mark Stachura, Gallagher’s head of broking and carrier relationships in the US.
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