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Understanding Social Inflation: How it Affects Your Auto and Home Insurance

Social inflation might sound like a fancy term, but its impact on your auto and homeowners insurance is real and something you should know about. It’s like a hidden force that quietly influences what you pay for insurance and how insurance companies operate. Let’s break it down in simpler terms and see why it matters to you.


What is Social Inflation?

Think of social inflation as the ripple effect of societal factors on insurance claims. Imagine a small car accident in your neighborhood. What starts as a minor incident escalates into a major ordeal with inflated claims of injuries and emotional distress. This escalation is fueled by evolving attitudes towards litigation and the rapid spread of news through social media. Regardless of whether these large payouts are justified, the perception that insurance companies should be penalized because they have deep pockets ultimately drives up costs. These increased costs for insurance companies then get passed on to consumers, raising everyone’s insurance premiums.


How Does it Impact Auto Insurance?

In the world of auto insurance, social inflation shows up in various ways. More lawsuits after accidents, higher medical costs, and bigger payouts by juries are just some examples. All these factors make it more expensive for insurance companies to cover accidents, so they have to raise their prices to keep up. That means higher premiums for you, even if you’re a safe driver.


What About Homeowners Insurance?

Social inflation also affects homeowners insurance. With property values going up and more liability claims being filed, insurance companies face increased risks and costs. This can lead to higher premiums for homeowners, even if they haven’t made any claims themselves. It’s like everyone in the neighborhood paying for the actions of a few.


A Story from San Bernardino

To better understand social inflation, let’s look at a real-life example. In San Bernardino, two sisters filed a flood insurance claim against their insurer. Initially, an adjuster offered them $5,000 to repair the damages.  However, the sisters estimated that they needed more than $100,000 to properly fix their home. They also claimed severe emotional distress and other injuries, leading to a lawsuit. On April 18th, a jury awarded them a staggering $18 million verdict. This case illustrates how disputes over insurance claims can escalate dramatically, reflecting the impact of social inflation.

This case exemplifies social inflation in action. The verdict was influenced by various factors, including the portrayal of the sisters’ suffering, public sentiment, and the jury’s perception of the case. Such large verdicts drive up costs for insurance companies, which then pass these costs onto consumers in the form of higher premiums. It’s important to note that we are not passing judgment on the merits of the verdict itself; rather, we are highlighting how these factors contribute to the broader trend of rising insurance costs.  To learn more about this verdict visit: From $5,000 to $18,000,000.00


What Can You Do About It?

Realistically, not much. Social inflation might not be something you think about every day, but it has a real impact on your wallet when it comes to auto and homeowners insurance. By understanding how it works and taking steps to protect yourself, you can navigate the insurance landscape with confidence and ensure that you’re getting the best coverage at the best price. The story of the sisters in San Bernardino is a powerful reminder of how social inflation can influence insurance claims and costs, affecting us all.

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