URMIA Matters

Social Inflation

March 06, 2024 Host: Julie Groves with guests Kim Nimmo, Sarah Braughler, and Stef Zielezienski Season 5 Episode 6
URMIA Matters
Social Inflation
Show Notes Transcript

In this episode of URMIA Matters, Julie Groves, Director of Risk Services at Wake Forest University interviews Kim Nimmo, Director of Risk Management at Lehigh University, Sarah Braughler, Vice President of Risk Management at United Educators, and Stef Zielezienski, Executive Vice President and Chief Legal Officer at APCIA, about social inflation and its impact on risk management in higher education. Together they explore the phenomenon of social inflation, which is the rising costs insurance companies face due to factors such as increasing jury awards, broader definitions of liability, and other factors. Our guests also share some tips on how to combat the effects of social inflation on higher education campuses, such as implementing risk management strategies, educating students and staff about liability issues, and engaging with policymakers and regulators. Listen in to skill up on your understanding of social inflation!

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Show Notes
UE: 2023 Top Risks Report: Insights for Higher Education
APCIA- American Property Casualty Insurance Association
NAIC- Social Inflation Defined

Kim Nimmo, Director of Risk Management- Lehigh University
Sarah Braughler, Vice President of Risk Management- United Educators
Stef Zielezienski, Executive Vice President and Chief Legal Officer- APCIA

Julie Groves, Director, Risk Services, Financial Services - Wake Forest University


Jenny Whittington: Hey there. Thanks for tuning into URMIA Matters, a podcast about higher education risk management and insurance. Let's get to it.

Julie Groves: Hi everyone. I'm Julie Groves, the Director of Risk Services at Wake Forest University and I'll be your host for today's episode of URMIA Matters. Today, we're going to be talking briefly about social inflation. And with me are Sarah Braughler, who is the Vice President of Risk Management at United Educators Insurance. And I think Sarah would be fine for me to mention that she's also a proud graduate of Wake Forest University, where she majored in English. So I think there are some very fine Wake Forest University English graduates out there if I do say so myself.

Sarah Braughler: Go demon deacons. You got it, Julie.

Julie Groves: So that's right. So glad to see you today, Sarah. Stef Zielezienski, who is the Executive Vice President and Chief Legal Officer at APCIA, which is the American Property Casualty Insurance Association. And last but certainly not least, Kim Nimmo, who is the Director of Risk Management at Lehigh University. Now Kim, I think before we move on, we have a captive audience here. We should let people know that your last name is not pronounced like the Disney movie. Is that correct?

Kim Nimmo: That is correct, though I am pretty proficient underwater.

Julie Groves: Well, good, good. So you all you all just take this as your learning opportunity? It's Nimmo, so welcome to the podcast everyone. Before we start our discussion, always like to ask the guests to tell our listeners a brief bit about themselves. So Sarah, why don't we start with you?

Sarah Braughler: Thanks, Julie. 

Julie Groves: Already gave away one of your most coolest your coolest, not most coolest. That was bad. Your coolest attributes, which is that you went to Wake. But go ahead.

Sarah Braughler: We have that in common. Julie. We did. We have that in common. So I am the Vice President of Risk Management at United Educators, and we are a member owned liability risk and insurance company and a fun fact about me is that I've been at UE almost 20 years, which is kind of hard to believe and some URMIA Members may know this. I think Julie knows and Kim knows, but back in the day, I actually started at UE ss an attorney on the claim side before I moved over to focus on risk management, and I worked with our members on complex claims on high frequency matters. And I think what's relevant for today's conversation about social inflation is that the concept of social inflation is not something we were talking about at UE until the past five or six years. And so I'm really glad to be here to discuss it with this group today.

Julie Groves: And this is a fairly new position for you, right? You were promoted not that long ago, correct?

Sarah Braughler: That's right. Couple of years ago.

Julie Groves: OK. Well, congratulations.

Sarah Braughler: Thanks, Julie.

Julie Groves: Glad to have you on today. So Stef, what about you?

Stef Zielezienski: So I've been with APCIA and its predecessors for 27 years, so I feel like I kind of grew up in the insurance industry and the public policy arena prior to the merger that created APCIA, I was the interim CEO. And then before that, it was the general counsel at the association. So I've been doing this for a while and tort reform, legal system abuse reform, social inflation, however you want to call it, it's been kind of a mainstay of the public policy arena for my entire time here.

Julie Groves: Well, great. Well, we're so glad to have you on the podcast today. And Kim, finally in 29 minutes or less, tell us something about you.

Kim Nimmo: So I've been the Director of Risk Management at Lehigh for the past seven years and before that I was in the District of Columbia. I worked for Mario Bowser under with the risk administrator there for a couple of years. And then before that, I was with Sarah Braughler and others at UE for 12 years. And before that, I was in risk management and lost control out in Colorado with farmers insurance. So, I don't know how, but somehow, I seem to have managed to somewhat of a career in risk management or loss control and insurance for 30 years, which is mind boggling, but here we are. It culminates in this podcast.

Julie Groves: They just people fall into it and then they just can't get out. I guess it's like the Hotel California. You can check out anytime you like, but you can never leave. Maybe. So, well, why don't we dive right into our topic today? So, Stef, can you tell us what exactly is social inflation and what are some of the contributing factors?

Stef Zielezienski: So you might have been able to tell during the intro, I don't love the term social inflation. It was a term that was first coined by Warren Buffett, when describing accelerating costs in the legal system during the 1980s liability crisis. In terms generally defined as the cost of the legal system over and above economic inflation. But it's a term that's not really easily understood by the general public, who often these days associated with the social justice movement or the S in ESG and as a communications industry friend once told me, if you're using terms that require further explaining, you're losing. So at APCIA, when we did message testing with consumers on what other terms other than social inflation kind of work, we shifted, believe it or not, to a lengthier term “legal system abuse,” because consumers inherently understand what that means. And what we mean by legal system abuse or practices and activities of the plaintiffs’ bar and their allies that artificially increase defense side costs are result in the US judicial system goals being something other than seeking truth and justice. And with societal attitudes really driving an increase in verdicts and settlements that really ensures that the plaintiffs’ bar narrative is institutional, defendants get what they deserve. 

So think of activities like using reptile theory to color juries’ opinions of defendant businesses and their insurers, or the introduction of third-party litigation funders whose investors seek to profit from US judicial system outcomes, and they turn a branch of government into another investment vehicle. There are probably more than two dozen activities and practices that we're watching as legal system of use from a policy perspective in the States and at the federal level. There's a really good article that Sarah brought to my attention on the UE Liability landscape page called “Steps to Combat Social Inflation” lays out a useful set of factors that provide a lens on what is and what is not social inflation. Those factors are institutional mistrust, changing litigation environment, and increased legislative risk. And let me add one other to that mix, that is the long tail nature of liability. 

And on institutional mistrust, the data shows a severe decline in public trust of educational institutions over the past decade or so. due in no small measure to reported instances of sexual misconduct and publicity surrounding settlements and verdicts in that space. The plantiffs’ bar using persistent advertising and reptile tactics like jury anchoring, are helping drive that mistrust. So the latest large loss report compiled by UE shows a troubling trend, even over the last four years and publicly reported large losses. In 2020, there were 31 reported large losses of at least $1,000,000 last year, that number more than doubled to 71, almost a third of which involve sexual misconduct claims and even worse, the number of large losses over 250,000 rose from 19 in 2015 to 107 in 2022, more than a 500% increase in eight years. And we talked a little bit about the other two factors, which are changing litigation environment, increased legislative risk and I kind of grouped those together and characterized that it relates to the plaintiffs’ bar taking advantage of the judicial and legislative branches of government to promote liability expansion wherever possible. And it's not a surprise when you hear me say that because, after all, this is their market and in order to get paid at the end of the day, they have to think of ways, creative and otherwise, to increase liability exposure in the courts. And as defendants in all these cases, we're kind of the victims of that competitive shield to increase costs in the judicial system, and so I would group those together. 

And again there are number of practices that would qualify as legal system abuse in that context. Probably the single most important change on that front is the assault on the state statutes limitation. Using sexual misconduct claims to drive extension and revive, or of limitations periods through emotion rather than reason. Other prominent examples include, as I mentioned, jury anchoring the advent of third-party litigation, financing time limited demands. allowing phantom damages into evidence, statutory damage expansion legislation, and assignment of benefits. And even with important legal reforms like we experienced last year in Florida, the increase in the plans for our efforts on issues like removing damage caps, expanding statute of limitation reviver to all civil claims which we saw in the session and introduction of a bad faith tort in order to drive a wedge between insurers and their policyholders are just tactics that plans for have that ready to focus on increased costs. The last thing I'll mention is tail risk and that is that intends to drive liability and expansion, increased system costs beyond inflation, because there's a tendency for liability to increase as a potentially maturing claim arises, which again underscores the importance of things like preserving such limitations.

Sarah Braughler: Well, the short answer is yes, all of the factors that Stef just described are affecting carriers like UE. Captives, member owned companies and it even affects self-insured institutions. Social inflation is affecting the broader environmental conditions that we're all working within to try to smooth out the effects of risk. So we're all suffering from the same effects. Now I can speak to what's happening at UE and I'm going to do that in a moment, but I really want to emphasize that this is an industry wide phenomenon. In fact, I'll add some of the work that we've done, I recently came across a prediction by Morgan Stanley predicting that social inflation will continue to be a significant headwind for the insurance industry throughout 2024 and probably beyond. So claim settlement and defense costs are continuing to rise for colleges, universities, and social inflation is a big reason why. 

So I mentioned UE and UE, we are trying to educate our members about what's happening to help explain this phenomenon and to tell our members how it affects their coverage and stuff, I'm really glad to hear that you checked out our liability landscape page. Anyone can go by ue.org and see that and there's a lot of information there. We've got a video explainer about what social inflation is. There's an infographic on the rising cost of claims and there are just a number of articles and different analyses there, including the steps to combat social inflation piece that you mentioned. Stef. 

So Julie, getting back to your question. Does social inflation influence the type of coverage needed at colleges and universities? And I'll repeat the emphatic “yes” and add a little bit more detail for what we're hearing from our industry partners. Just last week, in fact, I spoke with a number of influential education specific brokers, and they shared that prices are going up across all lines of insurance. There are significant property premium increases. Some carriers are exiting the market. Got cyber coverage that's also been commanding higher prices and that's if you can get it all. And then on the liability side, UE is feeling the effects of social inflation. But this is our market. We were formed by education to serve education. This is what we do and as a member owned company, we want to be transparent and take a community approach to trying to respond to what's happening. 

So what does that mean for liability coverage overall? Well, it means we've got to get the word out to the education community that settlement amounts, and defense costs are higher. I really commend URMIA for this podcast and other opportunities to speak to the dynamic and I'll get specific. This is a really interesting stat and Stef, you referenced our large loss report, this is not from our large loss report, but from some other industry materials, both the average and the median personal jury awards, have gone up significantly in the last five years, and it's important to think of the difference in the average and the median. So the average is the average. It's everything lumped together and divided. But the median is the middle amount between the higher and lower half of the data. So when you see a rise in a median number, it tells us that awards are growing quickly overall and not just due to a couple of outlier settlements. So to put specific numbers on the trends that I'm speaking about, jury awards of more than $10 million have increased and the median amount of those resolutions has doubled since 2014. And that's across all different types of losses affecting all different types of institutions. 

So what type of coverage is needed? Capacity is important to respond to these losses and broad coverage that actually responds to the most significant risks. And then finally, and I know you're going to get there in a minute, Kim, prevention is a huge part of the equation when we're talking about how to confront social inflation. It's the premise on which UE was built. And as the head of our risk management function, it's certainly something that I believe in, but colleges and universities who want to neutralize the effects of social inflation should operate a robust risk management program? URMIA has so many offerings that can help try to get ahead of the curve. Apply policies consistently and without exception to create a culture of risk management on campus and when things go wrong, respond with a cool head and a warm heart. Be ready in a crisis. And last point when things do go wrong and we know that sometimes, despite best efforts, they do, handle a claim with care and engage the right counsel, someone who has expertise in the space.

Julie Groves: Thanks, Sarah. And I think, if possible, we can put links to the resources you mentioned in the show notes for this podcast so folks can have a, you know, chance to take a look at that information. So Kim, can you share any proactive measures that higher ed institutions can take to mitigate potential financial risks?

Kim Nimmo: Yeah. So I'll try to be as broad as possible because this is obviously going out to a wide audience of institutions that you have, you know, individuals have different roles, different environments, reporting structures, different sizes, locations. I mean, it's a very broad spectrum that we're talking to. So, I think each individual on a campus can make a difference. And I think depending on the structure of your organization, your institution, it depends much, much of this will depend on your sphere of influence. If for an institution with an individual who has a very strategic role, who has access to senior leadership, you know, to the boardroom to maybe reports to a general counsel or VP of Finance, you know, you can really impact short term goals and long-term goals and you will be able to work on these things that both Sarah and Stef have been talking about. Much more effectively in a way, because you can have an impact on decisions that you know if the claim is made how that claim is handled, who the counsel is. 

If you are not in that environment and I think a lot of individuals are not in that environment, individuals may be more on a tactical front. They are in a smaller institution or maybe at a larger institution, but don't have that broad access to make strategic decisions. You can still make a difference, and I'll talk a little bit about that first, but really on the day-to-day operation, looking at what is the strategic plan at the university and what is the what are some of the goals that we are setting for ourselves and we're looking at contracts. Can I have an input on making sure that all the contracts and all the language for the insurance and all the indemnification is being, you know consistently applied across the university? Have an impact on what is occurring when your students go abroad, where they are going. Do you have the right protections for them if anything goes wrong? where are your students going and what are they doing on campus? 

All these little decisions that you make throughout the day ultimately will have an impact on this very long-term issue of social impact because ultimately it goes to what Sarah was just talking about- preventing claims. And if you can prevent something from occurring, ultimately it will result in, hopefully you know lesser of an impact on your bottom line. I think part of the problem in some of these equations though is that you know a lot of us don't feel the day-to-day impact or even the annual impact of social inflation. It's not our money that's being paid on the premium, it's the institution. It's coming out of a fund, but ultimately it does impact us because at renewals, it can be a more difficult decision with the broker, a more difficult decision with UE. But UE is just one of the players. We have 52 insurance policies at Lehigh. UE is not the biggest one. We have multiple players, and we have to look, you know, when I look at social inflation, I really look at property, the cost of labor, the cost of replacing an item when it’s broken. We spent 10s of millions of dollars on replacing equipment that breaks down, you know, so that is a big piece of social inflation, right? So if you have to replace chillers that cost $10 or $20 million, a couple of years ago, that would have cost you maybe a couple of $1,000,000, two or $3,000,000. Now it's much more expensive and it takes three years to get them. Right. 

So a lot of this has a lot to do with preventive care. So it's not just a tactical perspective, but if you do have the broader perspective of being able to be part of board level decisions, strategic decisions, you can actually have a real impact on what policies are purchased, the deductibles that are purchased. Do you need to conduct a risk assessment and identify where the risks are across campus and what safety programs are effective? You know, Sarah talked about the safety programs and the tools that UE and URMIA has. They're fantastic, but you have to implement those on campus and get them to the right people that that can make an impact. And ultimately when you have a claim, we handle all the claims within my office, across campus, across all lines of the university. How quickly things are placed and how quickly things are resolved makes a big difference. Getting people back to work, getting buildings back up and operation, getting the operations of your computers and your systems back online, that is, that all comes down to the next piece which is really having effective partners. And that partner can be a carrier, a broker, a vendor, getting the right people to help you to accomplish your goals and get back online, whatever the loss is, is really the most critical component that you can have in your system.

Julie Groves: So for risk managers, no matter where you are on the totem pole, whether you report directly to the board or if you're further down and you are responsible for a couple little things, you just need to do what you can to make sure things are buttoned up and things. The policies and procedures and training are in place, so you know, I think that's what we all strive to do anyway, so that's helpful, Kim, for you to kind of remind us of that and help us to remember that you know, it's doing those kinds of things, I mean, it prevents obviously claims from happening, but it also, you know, prevents this larger social inflation issue from happening. So I think that's really a helpful reminder to everyone.

Kim Nimmo: You know Julie? I'll just add one more thing. I think this is a unique community. Higher Ed is unlike any other community. The relationship between you know, the vendors, our insurance partners, and URMIA is just fantastic. There are so many outlets to get the help you need, and I think that is one of the true benefits. The information sharing is a key asset to individuals that maybe don't get the help they need on campus.

Julie Groves: And I mean just to follow up with that, I think that if anybody, if they listen to this podcast and they have any further questions, I'm sure that these folks will not mind at all if you reach out to them and you know, ask for more information, or pose your questions to them so. Well, I really appreciate you all being here today. I mean again, like I said, we could probably have another podcast on this, and we may do that in the near future. But this has been really helpful information, giving folks just a general overview and some steps that you know that they can take to make sure their coverage is appropriate and things they can do on campus. So it's been really great talking to you all. And this wraps another episode of URMIA Matters.

Narrator: You've been listening to URMIA matters. You can find more information about URMIA at www.urmia.org  For more information about this episode, check out the show notes available to URMIA members in the URMIA Network library.