Developing Inflation in Settlements: Drivers, Costs, and Reforms

Liability settlement values in the United States have risen faster than ordinary price inflation would explain, driven by a phenomenon insurers call “social inflation”: bigger jury verdicts, well-funded plaintiffs, aggressive courtroom tactics, and jurors more willing to impose large damage awards on corporate defendants. Inflation in liability settlements is not just a reflection of pricier medical care or repair bills. It is a distinct legal and cultural trend, and it is actively reshaping what personal injury, product liability, medical malpractice, and commercial auto cases are worth at the negotiating table.

Social Inflation Versus Ordinary Inflation

Swiss Re, the global reinsurer, defines social inflation as “the increased severity of insurance claims beyond that which can be explained by economic drivers.”¹ Economic inflation pushes up the raw cost of a claim: hospital bills, vehicle repairs, replacement wages. Social inflation is different. It operates through juries, courtrooms, and the legal marketplace, showing up as larger verdicts, more lawsuits, and higher settlement demands.

The gap between the two is measurable. Between 2017 and 2022, social inflation in the U.S. grew at an average annual rate of 5.4%, compared to 3.7% for economic inflation.¹ By 2023, Swiss Re’s social inflation index had reached roughly 7%. A 2024 RAND Corporation study found that trial awards per plaintiff in personal injury and wrongful death cases grew at a 7.6% compound annual rate between 2010 and 2019.²

The practical takeaway for anyone involved in a claim: a case today typically settles for more than a similar case would have a decade ago, even after adjusting for medical and wage inflation. That is true even though most lawsuits never reach a jury, because the shadow of what a jury might do sets the ceiling in every negotiation.

What Is Pushing Settlement Values Up

Nuclear Verdicts and the Signaling Effect

“Nuclear verdicts,” jury awards of $10 million or more, are the most visible force driving settlements higher. An Institute for Legal Reform study of 1,288 such verdicts between 2013 and 2022 found that the share of large verdicts ($5 million or more) rose from roughly 5.5–7.5% of trial awards in 2010–2016 to 12% by 2019.² The frequency of verdicts exceeding $100 million quadrupled over the decade preceding 2024, with record highs in 2022 and 2023.³

Two-thirds of nuclear verdicts come from three case types: product liability (23.3%), auto accidents (23.2%), and medical liability (20.3%).⁴ Four states, California, Florida, New York, and Texas, account for half of them. Product liability saw the sharpest growth, with median verdicts climbing from $24 million in 2013 to $36 million in 2022.

These outsized verdicts influence far more cases than they resolve. The Insurance Research Council calls it the “signaling effect”: defendants and insurers, facing an unpredictable jury, pay more to settle because the alternative has become far more dangerous.⁵

Third-Party Litigation Funding

Third-party litigation funding is money from outside investors used to finance lawsuits in exchange for a share of any recovery. Global investment in the industry reached $17 billion by 2021, with more than half deployed in the U.S.⁶ Swiss Re projects the market could reach $30 billion by 2028, and an Ernst & Young analysis estimates the pipeline could add up to $50 billion in costs to U.S. insurers over five years.⁷

When outside capital covers legal costs, plaintiffs have less financial pressure to accept early offers and can hold out longer for larger amounts. Swiss Re has estimated that up to 57% of the proceeds from funded tort cases go to funders, attorneys, and other third parties rather than the injured person.⁸

Anchoring, the Reptile Theory, and Juror Attitudes

Plaintiffs’ attorneys have adopted courtroom techniques designed specifically to raise damage awards. “Anchoring” involves proposing very high damage figures early in trial to shift the jury’s reference point upward. In the Texas case Gregory v. Chohan, counsel compared pain and suffering damages to a $71 million fighter jet and a $186 million painting.⁹ Research cited by TransRe suggests such anchors can produce awards double or quadruple what jurors would otherwise select.¹⁰

The “reptile theory,” from a 2009 trial manual by David Ball and Don Keenan, frames a defendant’s conduct as a broader threat to the community. Defense practitioners have attributed over $8 billion in verdicts and settlements to the strategy.¹¹

Juror sentiment has moved in the same direction. A Travelers-cited survey found that 67% of jurors believe companies knowingly sacrifice safety for profit, and 88% believe companies should take all precautions regardless of cost.¹² The share of Americans who consider legal damages “too high” fell from 42% in 2016 to 18% in 2023.¹³ Plaintiffs’ attorney advertising has helped shape those views: spending topped $2.5 billion in 2024, up 32% from 2020.¹⁰

Where the Pressure Is Heaviest

Commercial Auto and Trucking

Commercial auto liability has been hit especially hard. Annualized incurred losses jumped from 1.0% growth during 2007–2013 to 10.9% during 2013–2018.⁵ The average jury award against trucking firms climbed from $2.6 million in 2012 to $17 million in 2019, and verdicts of $20 million or more that year came 300% more often than the 2001–2010 annual average. A joint Insurance Information Institute and Casualty Actuarial Society study tied $20 billion in commercial auto liability claims between 2010 and 2019 to social inflation.⁶

Medical Malpractice

Medical malpractice is seeing a sharp rise in high-severity claims. A 2025 TDC Group actuarial study estimated that inflationary pressures added $4 billion in insured losses and expenses for physician-focused insurers over the decade ending in 2024, or 11% of booked losses.¹⁴ The average of the top 50 medical malpractice verdicts rose from $32 million in 2022 to $56 million in 2024.¹⁵ After adjusting for medical inflation, the share of claims exceeding $2 million climbed from 0.3% in 1990 to 3.2% in 2023.

Product Liability

Product liability carries the highest exposure to mega-verdicts. Incurred losses declined 7.1% annually from 2009 to 2014, then reversed and grew 17.4% annually from 2014 to 2018.⁵ Median nuclear verdicts in product liability reached $36 million by 2022, and emerging categories, including PFAS (“forever chemicals”), obesity, and algorithmic liability claims, are expected to expand product exposure further.⁴

What It Costs Insurers and Consumers

The costs land in two places: insurer balance sheets and consumer premiums. U.S. insurers added $16 billion to prior years’ liability loss estimates during 2024 reserve reviews, raising the calendar-year loss ratio for liability lines by nine percentage points.¹⁶ Over 2015–2024, adverse development for commercial liability lines totaled $62 billion. The NAIC has warned that under-reserving driven by hard-to-forecast social inflation is historically the largest cause of liability insurer insolvency.⁶

Households absorb these costs through premiums. The American Property Casualty Insurance Association estimates the average U.S. household pays between $2,000 and $5,400 annually in tort-related costs passed through insurance premiums.¹⁰

How Ordinary Inflation Enters Damages Calculations

Separate from social inflation’s effect on leverage, economic inflation directly affects how courts calculate future damages. The Supreme Court in Jones & Laughlin Steel Corp. v. Pfeifer (1983) held that future inflation should be considered when determining damages for future losses.¹⁷ Economists typically apply a “net discount rate,” the gap between the interest rate used for present value and the expected growth of earnings or costs, with a real discount rate of 1% to 3% generally treated as reasonable in personal injury cases.

In practice, expert testimony usually connects general inflation trends to a specific plaintiff’s losses, such as projected medical costs or lost earning capacity. Florida courts allow juries to consider inflation without specific expert evidence, but a plaintiff who fails to link inflation to a particular damage category can lose that component of the award.¹⁸ In high-inflation periods, these calculations push the present value of future damages upward, adding another layer of pressure on settlement amounts.

What States and Courts Are Doing About It

Florida’s 2023 Reform and Early Results

Florida’s House Bill 837, signed in March 2023, is the most closely watched test of whether tort reform can slow settlement inflation. The law moved the state to a modified comparative negligence system (barring recovery for plaintiffs more than 50% at fault), cut the statute of limitations for general negligence from four years to two, restricted contingency fee multipliers, and eliminated one-way attorney fee provisions.¹⁹

By mid-2025, insurance litigation volume in Florida had dropped roughly 30% from pre-reform levels.²⁰ Auto glass lawsuits fell from 24,720 in the second quarter of 2023 to 2,613 in the second quarter of 2024.¹⁹ Florida’s nuclear-verdict ranking dropped from second in the nation to tenth in 2024. Major auto insurers filed rate decreases: GEICO by 10.5%, Progressive by 8.1%, and State Farm by 6%. The average rate increase across Florida insurers fell from 21% in 2023 to a projected 0.2% in 2025, seventeen new insurers entered the market, and the state-backed insurer of last resort cut its policy count by more than half.

Georgia’s 2025 Overhaul

Georgia enacted its most comprehensive tort reform since 2005 when Governor Brian Kemp signed Senate Bills 68 and 69 on April 21, 2025.²¹ SB 68 limits medical damages to the reasonable value of care actually rendered rather than inflated billed amounts, prohibits anchoring tactics that reference specific dollar figures for noneconomic damages, permits evidence of seatbelt nonuse, and allows defendants to request bifurcated trials separating liability from damages.²²

SB 69 addresses litigation funding directly. Beginning January 1, 2026, litigation financiers must register with the Georgia Department of Banking and Finance, disclose funding agreements during discovery, and are prohibited from controlling litigation strategy or settlement decisions. Funders providing $25,000 or more face joint and several liability for sanctions in frivolous cases.¹⁹ By mid-2026, 20 auto insurers had filed rate decreases in Georgia since January 2025, though it remains too early to measure the reform’s full effect on settlement values.²⁰

Other State Action and Federal Proposals

The trend extends further. In 2023, Iowa capped noneconomic damages at $5 million per plaintiff in commercial trucking cases, Montana subjected litigation financing to usury limits and disclosure requirements, and West Virginia capped noneconomic damages in “deliberate intent” cases at $500,000.²³ In 2025, Louisiana adopted a modified comparative fault system and Oklahoma capped noneconomic damages while adding litigation funding transparency rules.²⁴

At the federal level, the Litigation Funding Transparency Act was introduced in February 2026 by Senator Chuck Grassley and three co-sponsors. It would require public disclosure of third-party funding arrangements in class action and mass tort cases and would bar funders from influencing litigation strategy or settlement negotiations.²⁵ The bill remains in committee.

Courts Pushing Back on Anchoring

In Gregory v. Chohan (2023), the Supreme Court of Texas overturned a $38.8 million verdict that included more than $15 million in noneconomic damages, ruling that damage awards must have a “rational basis” grounded in evidence.⁹ The court prohibited “unsubstantiated anchoring,” holding that comparisons to fighter jets, paintings, or percentages of corporate revenue “are not evidence of the plaintiff’s loss and do not assist jurors in finding reasonable damage amounts.”²⁶ Plaintiffs must show a rational connection between the evidence of injury and the amount requested, though the court declined to fix a required ratio between economic and noneconomic damages.²⁷

Where Things Stand

Nationally, social inflation shows no clear signs of slowing, even as Florida demonstrates that aggressive reform can produce fast results. Swiss Re reported in early 2025 that social inflation’s impact on U.S. casualty business would outweigh the earnings benefit of higher interest rates within one to two years.¹ The $62 billion in adverse reserve development over the past decade and the continued growth of litigation funding suggest insurer pricing has not yet caught up with settlement realities.¹⁶ New categories of litigation risk, from PFAS contamination to algorithmic liability, remain in early stages and could widen the pipeline of claims. Whether settlement inflation continues to accelerate or begins to stabilize will depend on how legislative reform, judicial limits on trial tactics, and the flow of private capital into litigation interact over the next several years.

1
Swiss Re. Social Inflation: Sigma 4/2024
2
RAND Corporation. What Is the Evidence for Social Inflation?
3
Institute for Legal Reform. Nuclear Verdicts: An Update on Trends, Causes, and Solutions
4
Institute for Legal Reform. Nuclear Verdicts Study
5
Insurance Research Council. Social Inflation: Evidence and Impact on Property-Casualty Insurance
6
NAIC. Social Inflation
7
Insurance Business Magazine. Insurers Warned TPLF Could Add $50B to Industry Costs
8
Triple-I. Third Party Litigation Funding White Paper
9
GRSM. Texas Supreme Court Overturns Non-Economic Damages Award Not Grounded in Evidence
10
TransRe. Social Inflation Overview 2025
11
Columbia Law Review. Shadow Tort Law: Lessons From the Reptile
12
Travelers. 4 Factors Causing Social Inflation
13
EECMA. Nuclear Verdicts Presentation 2025
14
Captive.com. Inflation Adds $4 Billion to Medical Malpractice Losses
15
The Doctors Company. Medical Malpractice Claims Made: Social Inflation and Loss Development Report
16
Swiss Re. US Property and Casualty Outlook
17
EmployStats. Present Value of Discounting Principles
18
FindLaw. The Effect of Inflation on Damages for Future Losses
19
Milliman. How Tort Reform Is Shaping Insurance Claims: Florida and Georgia
20
Maryland Insurance Administration. APCIA Florida and Georgia Tort Reform and Benefits
21
WSHB Law. Georgia Enacts Historic Tort Reform
22
Swift Currie. Evening the Playing Field: 2025 Georgia Tort Reform
23
ATRA. State-Level Tort Reform in 2023: A Recap of Key Legislative Enactments
24
Sedgwick. How States Are Fighting Back Against Social Inflation
25
U.S. Senate Judiciary Committee. Grassley Proposes Third-Party Litigation Funding Reform
26
WSHB Law. Supreme Court Overturns Damage Award
27
Sulloway & Hollis. Anchoring a Verdict Without Angering the Court