Social inflation drives loss costs, Zywave

The cost of both direct and indirect losses is escalating– with increasing claims severity, more frequent business disruptions and reputational damage, insurers are feeling the financial pressure, according to Zywave's report, "Navigating the escalating risk trajectory." 

Claims severity is one of the greatest drivers of insurance costs, Zywave reports, with lines like commercial auto, product liability and general liability experiencing higher payouts and, as a result, higher premiums. 

The report also attributes social inflation, or the rise in litigation costs as social perceptions shift about financial responsibility, as a significant reason for loss inflation. A Swiss Re report on social inflation and its impact on driving claims inflation revealed that social inflation rose by 5.4% annually from 2017 to 2022 and rose to 7% by 2023. 

Zywave's analysis of loss data shows that direct loss costs continue to increase: the median loss over $1 million grew from about $2.5 million in 2012 to nearly $5.4 million in 2024. The Zywave escalating risk trajectory report provides an analysis of emerging risks, causes of loss, types of loss, laws and regulations, litigation trends and the cost of loss by leveraging Zywave commercial insurance and historical loss event data. 

The following chart uses data from Zywave's report and loss insights on the trajectory of loss inflation from 2000 to 2024.