Analysis Sees Exposure Growth Driving Upward Liability Premium Trend

Global liability insurance premiums will grow by 4.7 percent on average each year until 2040, reaching $583 billion and accounting for 13 percent of all property and casualty insurance business, according to the Swiss Re Institute in "Economic Insights—Liability Premiums To Soar 150% by 2040 Due to Social Trends, Technology, and Climate Change," October 28, 2021.

The premium growth will result from continued growth in liability exposures, driven largely by emerging risk factors, Swiss Re said. Social, legal, and technological trends will cause the liability insurance market to grow faster than the overall economy.

In the medium term, social inflation-related factors will continue to drive the frequency and severity of large verdicts and settlements in the United States. In the longer term, emerging risk factors such as new technologies and environmental liabilities will contribute to additional growth in liability exposures, according to Swiss Re.

Economic development is and will remain the strongest long-term driver of liability risk, the Swiss Re Institute report said. But social inflation will remain an important factor in liability exposures over the next 20 years, leading to the liability insurance premium volume expansion that exceeds the rate of economic growth.

The report noted that since 2015 there has been a significant increase in casualty claims in the United States due to the increased use of applied psychology tactics by plaintiffs' attorneys, more litigation funding, and juries' growing consciousness of social justice and eroding trust in corporations and institutions. At the same time, legislation and case law are also expanding the scope of legal liability and driving up liability claims costs, Swiss Re said.

Technological and environmental risk factors also could expand the scope of insurers' liability exposures, according to Swiss Re. For example, while artificial intelligence (AI) will likely be transformative for such industries as manufacturing, transportation, and health care, AI systems can make mistakes that could lead to tort liability and discrimination claims, Swiss Re said.

"The challenges presented by AI do not fall neatly within current liability products, and we expect a coverage gap related to AI losses to emerge, leading to the development of new insurance products and coverages," Swiss Re said.