Social Inflation Drives Up Workers Compensation Claims Severity and Costs

The property and casualty insurance industry is increasingly concerned about the effects of social inflation, now extending into workers compensation claims. Industry experts noted a rise in claim severity influenced by expanded medical treatments and a shifting liability landscape. A notable trend is the challenge to the traditional exclusive remedy defense, with more claims being pursued as negligence lawsuits to seek higher verdicts, particularly nuclear verdicts with multi-million dollar awards.

Legal strategies have evolved as plaintiff attorneys adapt to the current liability environment, emphasizing emotional appeals in court. Several factors fuel social inflation in workers compensation, including social media influence, increased plaintiff attorney advertising, and sometimes unrealistic expectations of the system. Lawyer involvement adds significantly to claim costs and duration, leading to more complex settlements involving life-care plans and mental health assessments.

Regulatory changes also contribute to rising costs, especially with the expansion of claim presumptions for mental injuries that were previously less compensable. States like Connecticut and New York have recently broadened workers compensation regulations to include these claims.

To mitigate these challenges, experts recommend employers enhance safety programs, improve workplace culture, and invest in wellness initiatives. Coordination with third-party claims administrators and leveraging data analytics for predictive modeling can identify high-risk claims early. Such targeted management techniques are vital to controlling claim severity and costs from initial identification through settlement.

These insights underscore the shifting dynamics in workers compensation due to social inflation and regulatory developments, signaling a complex environment for insurers and employers managing these benefits.