The Rise of Claims Severity & Social Inflation in 2025: What Insurers Need to Know

Rising claims costs are driven in part by inflation, of both the traditional kind and the social kind. Pushing jury verdicts, settlement demands, and overall claims costs higher, social inflation is the convergence of cultural, legal, social, and financial dynamics — and claims departments feel the effects. 

Strategically managing rising claim severities is the ultimate goal for insurers. As the frequency and intensity of high-dollar claims rise, it is critical to understand the influence of social inflation on the insurance industry and how to respond proactively to manage costs and outcomes, even as social inflation continues to rise. As carriers navigate 2025, the pressure to manage mounting losses and unpredictable verdicts is at an all-time high.

Why Claims Severity Is Rising — and Why 2025 Feels Different

Claims severity has been rising for several years, but 2025 is different. It marks a tipping point for the industry as data shows expected increases in both the average claims payout and the outliers. Nuclear verdicts, which are those exceeding $10 million, and thermonuclear verdicts, those that exceed $100 million, are at an all-time high, and the ceiling seems to continue rising. 

The impact of social inflation is intermingled with the effects of macroeconomic factors, legal shifts, and societal expectations. Public perception of the insurance industry has declined, and juries are increasingly awarding exceptionally high verdicts in cases where they view corporate behavior as negligent or lacking accountability. Several forces influence social inflation, including:

• Third-party litigation funding, enabling longer and more complex cases
• Evolving public perception and skepticism toward large corporations and the preference for punitive damages to right social wrongs 
• Social media amplifies the public opinion of cases
• Plaintiff-friendly jurisdictions are expanding

These dynamics make it more challenging to predict outcomes, reserve appropriately, and manage defense costs. 

The Power of Technology in Managing Social Inflation 

Taking a technology-forward approach to claims strategy can help insurers control costs and reduce severity, even during shifts in market conditions caused by social inflation. Insurers have solutions available, including using digital claims management platforms to manage claims.

This technology-enabled approach gives insurers access to strategic claims management tools, providing early intervention to allow insurers to identify high-risk claims early and intervene appropriately; claims triaging with AI and predictive modeling to flag outlier claims before they escalate; and fraud analytics to help spot red flags sooner. Litigation management tools streamline legal workflows and improve outcomes, while personalized customer communications give insureds clear, proactive information. These tools help insurers develop timely settlement strategies, allocate resources efficiently, and limit unnecessarily elevated payouts.

A modern claims management platform is essential for insurers navigating the shifting dynamics of social inflation. The world is not static, and legacy point solution interactions and bespoke feature development impedes speed to market.  Dynamic and configurable  platforms allow for claims teams to dynamically drive automation, insight, and results faster and cost-efficiently, even when the external environment remains unpredictable, unstable, and even unfavorable.

The reality is that social inflation isn’t going away. And as claims severity continues to rise, policyholders will inevitably pay some of these additional costs, adding to perception challenges already facing the industry. The forces driving social inflation are only intensifying, but with strategic claims management and modern claims technology, insurers can mitigate these risks. Tools that streamline operations, improve insights, and connect policyholders and insurers in more personalized ways give claims departments the ability to manage rising severities without losing sight of expenses and service.

To stay ahead of social inflation, insurers must move beyond traditional approaches and embrace technology-led claims strategies built for the volatility of today — and tomorrow.