Rising nuclear verdicts impact global insurance industry

Joy Agwunobi 

The rise in massive lawsuits, particularly in the U.S., is posing challenges for the insurance industry, as rising nuclear verdicts increasingly impact the liability landscape. With verdicts exceeding $100 million becoming more common, businesses across various sectors are now facing unprecedented risks.

This trend, highlighted in a recent report by Allianz Commercial, a global leader in liability insurance, shows that U.S. courts have handed down an alarming rise in high-stakes verdicts, with some cases reaching thermonuclear levels of over $100 million. The number of such verdicts has surged by 27 per cent in 2023 alone, while the size of these awards has more than doubled since 2020.

According to the Allianz Commercial report, these massive verdicts are not only affecting U.S.-based companies but also international firms with operations in the U.S. The driving forces behind this surge in litigation are complex, including growing public mistrust of large corporations, aggressive legal strategies by plaintiff attorneys, and changing jury demographics. As businesses increasingly face legal pressures, the insurance industry is grappling with the financial consequences of these rising claims.

The report outlines five significant liability loss trends that companies and insurers must monitor closely. One of the most prominent drivers of the increase in verdicts is the public’s deepening scepticism towards large businesses. As consumers question corporate motives, juries are more inclined to award hefty damages. Plaintiff attorneys are capitalising on this shift by pushing for larger settlements.

Additionally, the erosion of tort reform, the changing composition of jury pools, and the normalisation of billion-dollar verdicts, particularly in personal injury claims, are contributing to the rising costs faced by the insurance industry.

The rapid escalation of liability claims is further fueled by litigation targeting the pharmaceutical, food, and chemical industries. Products such as opioids, talcum powder, and herbicides have become the focal points of billion-dollar class-action lawsuits. The growing trend of cancer-related claims is especially concerning, as risks often emerge long after products are sold, adding volatility to liability insurance.

The report also highlights the emergence of forever chemicals like PFAS (per- and polyfluoroalkyl substances), which have been implicated in environmental pollution and personal injury claims. The long-term health impacts of PFAS exposure are just beginning to be understood, and settlements linked to these chemicals are already reaching into the billions.

In addition to U.S. cases, Europe is also seeing an uptick in class actions and collective legal actions, signalling a potential shift in global litigation patterns. A growing number of European countries are seeing consumer groups leverage collective redress frameworks to hold businesses accountable. The report notes that 2023 saw a record number of class actions in Europe, with the UK, Germany, the Netherlands, and Portugal accounting for the majority of cases.

For the insurance industry, these rising trends in liability claims are increasingly difficult to manage. Over the past five years, defective product incidents have accounted for more than 40 per cent  of all liability claims, with crash incidents, faulty workmanship, and bodily injury also being significant cost drivers.

Alfredo Alonso, Global Head of Liability Insurance at Allianz Commercial, explained that these growing liability loss trends are pushing insurers to reassess their strategies, especially in the U.S. market. “The evolving legal landscape and increased loss costs are influencing insurers’ decisions regarding capacity deployment and profitability,” he noted. Alonso emphasised the importance of collaboration among stakeholders to manage these risks and control the rising cost of liability claims.

Arne Holzheuer, Global Practice Group Head for Liability at Allianz Commercial, added that pharmaceutical product liability claims are particularly challenging, with high defence costs and multi-party involvement making them complex and costly. “A harmful product can trigger numerous legal actions, accumulating significant losses for insurers,” he said.

Joerg Ahrens, Global Head of Key Case Management for Long Tail Claims at Allianz Commercial, warned that the current trajectory of rising liability costs, driven by social inflation, is unsustainable.

“The increasing frequency of nuclear verdicts will ultimately impact businesses, consumers, and insurers alike,” Ahrens stated.

He called for more effective tort reform, greater collaboration between insurers and insured businesses, and a tougher approach to settlement negotiations to address the escalating costs of liability claims.