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At one of the early meetings of American Legal Connections, Rich Henderson, a senior vice president for reinsurer TransRe, bumped into a concerned client from a hospital insurance company who brought his team members to the event.

The insurer was trying to get up to speed on the litigation landscape as it faced the near-term prospect of bringing a really big case to trial, reported Henderson, who co-chairs ALC, a group of claims professionals, defense lawyers and health care system executives—people that Henderson refers to as boots-on-the-ground fighters of social inflation trends.

Read more about ALC:

“Who else is involved in the [medical malpractice] case with you?” Henderson recalled asking the company representative, who revealed the name of another carrier providing insurance to a co-defendant. “They’re in the room,” Henderson advised, also going on to reveal that claims professionals from an excess insurer were sitting at the next table.

“Just in that space, they were able to put together a cohesive plan face to face. [And] at the end of the day, the claim ended up settling for [an amount] everybody was happy with.” On top of that, they came together on a discussion of life care plans, a key component of the economic damages portion of the case’s value—and they ended up hiring one of the attorneys who was presenting on that topic at the event.

“It was a win-win times four probably because everybody came to realize there was a path forward and to be on the same page, and barriers were broken down which otherwise would have stood in the way,” he said.

That’s not what usually happens.

The day-to-day evolution of liability settlements is all too often characterized by infighting between insurance tower participants, a scenario that plaintiffs lawyers bank on to push higher settlement values for cases beyond the med mal cases that Henderson specializes in, casualty insurance and reinsurance professionals told Carrier Management.

“The greatest thing they can do is try and divide and conquer against insurers,” said Tony Rai, chief claims officer of Aspen, during a recent interview, referring to plaintiffs lawyers and underscoring an idea he first presented in an article he wrote for Carrier Management in 2023, ““

Aspen sees social inflation from several perspectives—primary insurer, excess insurer and reinsurer. In his article, Rai urged upper-layer tower participants in liability placements to resist issuing “hammer” letters to the layers below trying to force settlements in those lower layers—even when the settlement dollars demanded are unreasonably high relative to injury or damage suffered. These letters, threatening to put lower-layer insurers on the hook for amounts above their policy limits as a consequence of rejecting demanded settlements, induce fear of taking cases to trial or negotiating with plaintiffs lawyers. This is “one critical factor that pushes up settlement value and drives social inflation,” Rai wrote.

Marc Wolin, president and chief executive officer of Seneca ÈȵãºÚÁÏ Company, a member of the Crum & Forster group, views the hammer letter threats of bad-faith claims tied to rejected settlements as an everyday event. While Seneca doesn’t write a lot of umbrella business, Wolin has a view of the broader landscape from his participation on the C&F Claims Counsel, a group of executives from across the enterprise that meet to review and assess large claims for the group. “If I’m 5X5, and I take [a case] to trial and it becomes 12 or 14, then I could be stuck with bad faith,” he said. “The downside is so upside-down that everybody pays” the ultimate price of escalating claims, Wolin said.

During a recent interview, Rai reported that in the months since CM published his article in late December last year, he’s seen a handful of instances where insurers are sticking to their guns, prepared to take claims to trial when they can’t get a fair settlement value out of the plaintiffs lawyers.

Still, those are isolated, he said. The overall situation “has not changed materially. We still have carriers that are very aggressive at trying to get things resolved below their layers, even though the value of that claim might be substantially less than is being offered…It’s below their layer. They want it resolved so that it doesn’t have any potential impact to them,” he said.

Getting on the Same Page

“What we really need to make sure that we do as an industry is properly value the claim,” Rai concluded. “The purpose behind insurance is to compensate someone for the loss that they’ve suffered. And it’s very hard to value certain losses,” Rai said. “How do you value a serious injury or wrongful death? How do you value someone’s life? But that’s unfortunately the part of the process that we have to go through…The core element is really trying to drive around how do we properly value the claim.”

From there, when carriers are all aligned—agreeing on what the value of that actually is— “we then need to make sure that we’re fighting the plaintiff’s attorneys to try and drive to that correct value,” Rai said.

“Collaboration needs to happen to make sure that we are driving to a compensatory value for the claim.” (See related article, ““)

Henderson offered his assessment of how the landscape has changed for medical malpractice claims. A large hospital system may have $200 million of insurance coverage split up across 10 or 15 different insurance companies, with the hospitals retaining the first $5 million, as one example. As verdicts and settlements are growing in size, insurers on the higher layers of the tower, who sat in the background in the past, will increasingly demand underlying layers accept settlements far in excess of perceived claim value—even though it may be a completely excessive demand, not justified by any of the facts. On many occasions, unfortunately, the first reaction from the excess insurer may be, “if you don’t settle the claim now, then we’re going to keep open our opportunities for bad faith if the claim ends up settling for a higher number in the future.”

“What that does is it creates friction within the tower because the claim with that $30 million demand may legitimately be worth maybe $20 million. But the underlying insurers [are] backed into a corner. They’re not only fighting the claim from the plaintiff’s side, but they’re also fighting the claim from above them, from the excess insurers’ side. This can lead to an escalation in claim settlements and set the bar higher for future similar claims which may be brought.”

“And many times these demands are made by the plaintiffs [lawyers] in a time-sensitive manner. They’ll say, ‘This demand will only be open until next month. And after that it’s going to come off the table and you’re never going to see that demand again.'”

Wolin, a finance professional by background, offers a word of advice to insurers who face these time-limited demands. “You’ve got to be street smart,” he said. “They’re going to set you up. Know they’re setting you up.”

“Get good lawyers,” he said. “Good lawyers can deal with it properly.”

John E. Hall Jr., a partner for Atlanta-based Hall Booth Smith, which serves as a national counsel for insurance carriers that include TransRe, sees the same problems from his vantage point. “As the number of parties within the insurance tower continues to grow, we are witnessing an unsettling trend: Plaintiff attorneys are making increasingly unrealistic demands and refusing to negotiate in good faith to create discord within the tower,” Hall wrote in a LinkedIn post last year.

“Unity and collaboration among defendants, defense attorneys, and insurers are essential to countering these exaggerated claims and ensuring that settlements reflect the actual merits of the case,” wrote Hall, who is also the founder of ALC. “We must prioritize communication and teamwork to maintain the integrity of our valuations and protect the interests of all parties involved.”

Quick Fixes vs. Long-Term Solutions

Friction between insurers on different towers layers isn’t the only source of division on the defense side when lawsuits are filed. In the medical space, Henderson noted that there’s often friction between multiple defendants and their insurers as well. “There’s certainly the potential for finger-pointing. The hospital will say, ‘That’s not our case. We’re only in this because we’re the deep pocket. It’s really the doctors’ case.’ [At the same time], the doctors are saying, ‘We think we did the right thing. If you’re so anxious to settle the case, then you settle it.'”

Absent collaboration on claims, insurer worries about ever-increasing settlements are prompting underwriter responses—higher premiums and greater division of risk limits, insurance industry and defense representatives. (See, for example, Q&A between Assured Research President William Wilt and Hall, titled “Liability ÈȵãºÚÁÏ: Discord in Liability Towers Add to Reserve Pressure,” August 2024 Assured Briefing, https://assuredresearch.com/research/)

“In many cases, the amount of the verdict or the settlement is strictly defined by the limit, not the damages or who is the responsible party,” said Wolin. “The only way to deal with it really is to compress limits,” he said, noting that carriers that used to put out $15, $20 and $25 million limits on liability are only putting out $5 or $10 million now.

Seneca sees the impact of social inflation on the liability portion of commercial packages it writes in major cities like New York, Chicago, Los Angeles and Philadelphia, and Wolin offered an example illustrating how that goes to a jury verdict can wind up costing the carrier backing the least responsible defendant the most money. In his example, a $10 million payout came from the insurer for backing the biggest defendant, which was the least at fault, while other insurers for at-fault defendants doled out $1 million and $3 million payments.

“You could add sublimits or exclusions in certain cases,” he continued, noting that some of Seneca’s insured landlords face lawsuits related to shootings on their premises. “The landlord did nothing. But what’s the reasonable expectation? It’s up to the jury. So, the reasonable expectation is the insurance carrier has to pay,” he said, noting that assault and battery exclusions are now becoming more commonplace.

“Underwriters need to be very aware of the spots where legal system abuse is the most at risk and pay special attention to how they underwrite those risks, including completely withdrawing capacity from some pockets of the market,” said David Marra, executive vice president and group chief underwriting officer for RenaissanceRe. “But in a lot of their core business, they need to continue to raise rates and raise retentions,” he said, adding, “As they raise rates and raise retentions, it highlights what this problem really is, which is a tax on business.”

“Insurers will figure out the right rate to charge over time. The ultimate cost to this gets borne by customers and business,” he said.

Marra noted that when the courts reopened after COVID-related shutdowns, insurers knew that social inflation would come back. “But it was not until this year that we got evidence of how strongly it is coming back in some areas—and requires action by the market in those areas to maintain profitability,” he said. “Rate has not been as strong in 2024 as it was in, say, 2021,” he added, suggesting that acceleration of primary liability insurance rate hikes is now required.

While higher pricing, skinnier limits and exclusions are reasonable responses from underwriters, reinsurance executives Marra and Henderson are also keen to understand the responses of insurance company claims professionals.

When carriers move $25 million limits down to $5 million, a knock-on effect is that “they’re more likely to just tender their limits and not take a case to trial,” Marra said. “If it’s part of a well-triaged defense strategy to proactively settle bad claims quickly, that’s great. If it’s out of fear that we might get hit with bad faith if we go to trial or all the other risks out there, then it could lead to claims settling at higher amounts than they really should, which then makes the severity problem even worse,” he said.

“The phrase I like to use is, ‘They have fixed the problem, but they haven’t solved the problem,'” said Henderson. “They fixed the problem of not paying their $25 million policy limit, but they haven’t solved the problem, which is that claim value itself has not decreased. If it was a $25 million claim before, it’s going to be a $25 million claim—if not more—again.”

Henderson offered an analogy to turning up the radio in your car when you hear a noise coming out of the car engine. “You no longer hear the noise, but you haven’t solved the [underlying] problem.”

“We need to attack the actual claim value, plain and simple. That’s what is going to improve results in the long run,” he said.

Getting everyone on the same page is not always easy, executives agreed.

“It starts with communication between the insured and the broker understanding which markets [to choose]—because some insurers just naturally don’t play as nice in the sandbox as others,” Henderson said. “Others are more willing and more able to share and collaborate and communicate with each other. So, that’s a big part of it—making sure that the right players are in place at the right spots.”

Reinsurers, he said, can help to “short circuit the level of discord” by having multiple touch points with their insurance company clients throughout the year, to ensure that information from a national perspective is shared from reinsurer to reinsured and, at the same time, that local information from the reinsured is shared with the reinsurer.

“And if there is a bad claim, it’s a matter of getting out in front of it early. ‘This is what our game plan is going to be. Let’s try to stay together…”

“Easier said than done, but we have seen enough success with it, [and] we know that it can be done much more than it has been done in the past.”

Scrap the Layers

Wolin offered another underwriting fix—a restructuring of coverage into side-by-side percentage participations, instead of layers of coverage offered by successive carriers in a tower. “We have a $50 million layer, and instead of being 10X10, I’m 5 percent or 10 percent of 50,” he said. “Then we can all fight the good fight.”

“If that $3 million, that $10 million claim becomes $30 million, I’m at a million and a half. I’m not out for my layer,” he said. “There’s strength in numbers, and we share the pain together.”

“That would really solve the problem of all these carriers being menaced in the [layered] structure,” he said, admitting that some execution issues would have to be addressed. He believes one or more of the major brokers could navigate the logistics of putting together a liability consortium, addressing claims handling issues with a claims cooperation clause and the selection of a lead carrier to handle any lawsuit claims.

“The carriers should buy in…You’re cutting your risk,” and you can really battle those plaintiff attorneys, he said, noting that the fear of having to pay out tens of millions is gone for individual insurers who take percentage slices of the full limit. With carriers facing less risk, the proposed structure should allow brokers to assemble more capacity.

Give a Number

“That would be an interesting proposal to think about,” Marra said, when CM shared Wolin’s idea, imagining that it might impact claims handling in a positive way. It could align the market’s incentives, he said.

All executives agreed, however, that valuing claims properly and fighting them head-on is the ultimate fix. “The settlements will only come down when the industry fights the right cases and starts winning,” Marra said.

A hurdle that the defense/insurance side of injury lawsuits needs to overcome is a reluctance to offer a damages amount, Henderson noted.

“With med mal claims, the plaintiff has three key burdens to meet: (1) that there was a violation of the standard of care, (2) that the violation caused harm, and (3) that some level of damages ensued. Historically, the defense has focused on the first two points but have remained hesitant to bring up damages for fear this will signal they have given up defending points one and two. They further feel this will be seen as a sign of weakness before a mediator, judge or jury.”

” In reality, juries want to hear some sort of realistic position from the defense,” Henderson said, and the failure of the defense to address damages has been seen on many occasions to lead to excessive verdicts.

As things stand today, plaintiffs have an advantage when they present a number—even one that some jurors might think is outrageously high. It’s still an anchor—a benchmark planted in jurors’ minds that they can use as a reference point, while lacking a reasonable amount to consider from the other side.

“We need to explore more around how we can try and anchor ourselves to try and reflect the compensatory value of the injury or loss that’s been suffered,” Aspen’s Rai said.

“If a jet is worth $70 million, then what is someone’s life worth?” Plaintiffs attorneys will ask that in court, he said. Aspen has seen situations where awards rose into the “tens of millions” as a result of plaintiff lawyers anchoring even where the salary of an injured individual was relatively low or the person had few dependents, he reported

Insurers need to be prepared to pay reasonable amounts. “That’s what we’re here for. We’re here to settle claims and try to compensate individuals for the loss that they’ve suffered,” Rai said. But “what’s happening at the minute is you’re getting into scenarios where you are creating generational wealth for people…I accept it sounds crass to talk about an individual’s life in terms of money, but that’s unfortunately what we have to try and do when we’re valuing these cases,” he said.

Where liability is in question, there’s more resistance to offering a defense number. “Putting a figure forward indicates that you are accepting that that is the minimum amount, irrespective of the liability, that potentially could be apportioned between either other parties or the insureds,” he said. “How that is brought into evidence, quite subtly, will be one of the things that carriers will look at going forward…”

“When you’ve got liability [that is] not in question, it’s easier to do,” he said, distinguishing situations where the value is the only issue.

As to pegging the value, historical settlements can be a guide. “Our data will have historical settlements per jurisdiction for different types of injuries,” Rai said.

Unfortunately, he reported that plaintiffs’ lawyers tend to look at the highest verdicts awarded for similar injuries to develop the damage amounts to anchor juries. “We’ve had one recently where an individual was unfortunately shot and paralyzed. They looked at a similar loss but involving a completely different set of circumstances. They are saying basically our floor is the amount that was settled for that claim even though the facts are completely different, the fault’s completely different…”

“That then makes it impossible for us to settle because they’re not then looking at each individual plaintiff” or the facts and circumstances that will determine the right compensation value for the particular individual who was injured.

Reinsurer Vantage Points

Henderson noted that TransRe has relationships with leading defense firms nationally that are on the cutting edge of developing damages arguments and tactics during trial. “We cross-pollinate this information across client bases. As we’re talking to clients, whether West coast, East coast, large venues or less populated venues, we’re sharing what we learn….In so doing, we’re able to help them get better results.”

One example he shared was a case where the underlying nature of the injury was such that the plaintiff was required to have a lifetime of an extremely expensive medication as a result of the alleged negligence. The defense damages specialist found that there were options to provide the plaintiff with the same medication, but at a much lesser cost compared ot the life care plan. Henderson noted TransRe has shared similar outcomes with clients in other states that had similar claims.

“We’ve also had claims where the same plaintiff attorney will be in one part of the country, and then show up in another part of the country on a similar case with a completely different defendant,” he said, noting that some information about tactics used by plaintiff counsel can be shared without violating confidences.

Regional carriers, which operate in just one or two states, can get value from reinsurance partners who can clue them into what’s going on nationally, Henderson said. “When you look at a map of the country, too often the defense side will see the lines of 50 different states, if not multiple counties within each state. When the plaintiffs look at that same map, they don’t see lines. From the plaintiff’s perspective, they’re looking at exchanging information regardless of what territory it is, what state it is.”

“So, a tactic which is working in the Pacific northwest will quickly be shared with someone who’s working on the other side of the country.”

On the defense side, “we’re thinking a little too territorially and we’re looking too much at what’s happening in one specific state, or even one county within the state . You have to take a step back and look to look at a much bigger picture because a strategy that’s being used successfully in one state by the plaintiffs bar is going to be deployed very quickly in another state.”

Said Henderson, while “the No. 1 benefit that clients have when they buy reinsurance is the financial backstop, [a] secondary benefit is the value-added market intelligence we can provide them.”

Marra noted that the plaintiffs bar is using big data to its advantage—sharing data all the way down to the name of the insurance company claims adjuster. “They’re tailoring their strategy to each jurisdiction in each individual company or claims adjuster. The industry needs to have that same type of specialization in the defense counsel that we hire on the insurance side,” he said.

Like Henderson, Marra noted that reinsurers can play an important role in delivering valuable insights to cedents. While they have to be conscious of antitrust restrictions and can’t share information on individual claims, “reinsurers have a vested interest in aggregating claims and being able to use that aggregate data to spot trends.” Those trends are not just used in reinsurance underwriting but can also be relayed back to the market.

Marra believes RenaissanceRe’s ability to spot and share trends can be enhanced with more granular data from insurers, which the reinsurer intends to seek on a very proactive basis. RenaissanceRe is requesting more access to claims department data—and executives—for 2025 renewals. A claims triangle used to be all the reinsurer needed to spot a trend, but Marra reported that the triangles are now showing a lot of volatility along the recent diagonal. To understand whether that means settlements are speeding up, insurers are bumping up case reserve adequacy or simply that loss costs are rising at a higher trend rate, the reinsurance is asking for more data—claims count triangles, closed with pay or closed without pay, for example, to understand settlement rates.

“It’s not just the data. It’s also teeing up the right set of conversations where we understand how the insurers are underwriting around inflation and then how the claim settlement practices can help make sure that claims are settled at the right amount,” he said. There are nuances from one insurer to the next, he noted, pointing to new early triage processes and setting up signal reserves among the intricacies that just the loss reserve triangles don’t reveal.

Henderson noted that reinsurers also have a unique vantage point into how several insurers respond to the same claims situation. “We can have the same claim from two, three or four different clients”—multiple co-defendants or carriers providing different layers of excess coverage on a hospital claim. From that perspective, TransRe is “able to determine who gets it”—which carriers pick up on things sooner than others in handling claims.

And TransRe has seen differences between carriers—with some focused on cutting headcount in claims and other departments.

Henderson described TransRe client visits where carriers brag about being “lean and mean.” But are they being “pennywise and pound foolish?” he wonders. “You cut your expenses by 25 percent but how do you know that did not adversely impact you on the indemnity side?”

“I do absolutely believe social inflation is there….There’s no question. But we also can’t make it be the scapegoat and catchall for all poor results. There are many decisions made which can adversely impact results, whether from the claim or underwriting perspectives, and we have to be careful to understand where those end and where social inflation begins.”

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