Why Is Insurance More Expensive?

Social inflation is changing the liability landscape. Understanding it can help your school manage the costs.

Jan 27, 2023  |  By Joe E. Carter, United Educators

From the January/February 2023 Net Assets Magazine.

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Claim defense costs, settlement costs and jury awards have steadily increased for independent schools nationwide, and the trend is likely to continue. One significant factor that is impacting many industries, including educational institutions, is “social inflation.” Social inflation is the increase in insurer costs above what’s expected from general economic inflation.

The main factors driving social inflation include increased legislative risk, including new employment laws, strict liability for sexual misconduct and increased advertising by plaintiff attorneys. Within this changing legislative environment, there is also the factor of institutional mistrust: Public confidence has declined in education, and families expect more service and better outcomes. Juries are more likely to be biased against schools and their insurers when considering verdicts. And they often seek to punish schools due to the belief that schools — and schools’ insurers — can afford it.

In addition, many recent laws such as state reviver statutes provide an extended timeframe for claims to be filed many years after incidents occur. The concern for schools is that sometimes when these claims are filed at a later time, memories have faded, witnesses have disappeared, and records have been lost.

Nuclear Verdicts

In courts, some plaintiff attorneys focus on underlying safety or security issues in a way that appeals to the jury’s survival instincts, a trial strategy known as the Reptile Theory. This approach encourages jurors to see themselves as the protectors of children and seeks to portray independent schools as not caring about the safety and wellbeing of their students. As a litigation tactic, the strategy has been widely successful. It is a key reason the number of “nuclear” verdicts (those exceeding $10 million) have steadily increased since 2009, when the theory was first posited.

The pursuit of cases that bear the hallmarks of a nuclear verdict are often funded through third-party litigation financing. Hedge funds have actively invested money into lawsuits in exchange for a percentage of the settlement or judgment. This allows funders, including foreign investors, to support their own interests rather than those of victims. The funders’ pursuit of profit can skew case valuation and make it difficult to resolve matters for reasonable amounts.

Stef Zielezienski, executive vice president and chief legal officer of the American Property Casualty Insurance Association, noted in April 2022 that third-party litigation financing is estimated to be an $11 billion to $12 billion industry in the U.S. and growing. “By its very nature, third-party litigation financing promotes speculative litigation and increases costs for everyone. At its worst, outside investment in litigation financing dependent on a successful verdict creates incentives to prolong litigation,” he said.

Claim Cost Trends

Among the 680 K-12 schools insured through United Educators (UE), average losses for general liability excess claims tripled between 2017-20, while average losses for primary general liability claims increased by 1.5 times. The total cost of claims is increasing for claims related to student deaths and sexual abuse. Importantly, it’s also rising for commonplace incidents such as workplace discrimination; traffic crashes; and slips, trips, and falls.

Crisis Response

Given this worsening liability landscape, it’s more important than ever to establish a relationship of trust in your community and ensure incidents are approached with empathy. A school’s response can greatly impact the likelihood and cost of claims. An effective response that considers everyone affected by a traumatic event can promote healing and convey that your school cares.

Stressful and emotional situations are best handled when those involved follow policies protecting your school, while showing compassion to an injured student and their family. UE calls this a Cool Head, Warm Heart® approach to resolving claims.

To ensure that your school uses compassion when responding to injury-causing incidents, put systems in place to help guide everyone — from facilities to leadership — smoothly through your incident response. This includes establishing protocols and creating written policies and practices for staff to follow.

Immediate crisis response includes handling the emergency, documenting the details and notifying your insurance carrier. One additional step worth exploring is working with a crisis communications professional.

Consider these practical tips to show empathy, support healing in your community, and potentially help lower your cost of claims:

  • Don’t be afraid to say you’re sorry, while at the same time not admitting liability. Consider consulting with counsel or a crisis communications firm to help craft an appropriate message.
  • Establish a school liaison as the main contact for the injured student and/or the student’s family/representative to provide an organized response to their needs.
  • Be intentional about communications. For example, in the wake of a tragedy such as the death of a student, invite the family to campus for a memorial or anniversary. Take measures to stop automated notices such as tuition invoices or library reminders of overdue books.
  • Facilitate medical care and/or provide resources to help injured students. For example, if a student breaks an ankle after a fall and has mobility issues, ensure they have access to meals. And if they are missing classes due to the injury, offer tutoring assistance.
  • Offer to help arrange travel and accommodations for families to get to an injured student. This serves as a gesture of goodwill without admission of liability.
  • Consult with your insurance company before offering money or reimbursement of medical expenses.

Selecting Legal Counsel

Following a crisis, there’s temptation to employ counsel who is familiar to you, such as an attorney with whom your school has an existing relationship, or to hire a high-profile attorney without regard to that person’s specific experience. However, that may not be the best match for the circumstances.

Your school needs independent, expert representation — the right attorney for the case, with the experience and expertise to understand the legal and jurisdiction-specific issues and handle the case efficiently whether it involves bringing the matter to trial or finding a reasonable settlement.

Consider whether a claim is best suited for an individual attorney. It’s important to understand whether the attorney has a record of success in similar matters, the attorney’s jurisdictional expertise, and litigation-specific experience, including taking cases to trial. You also need someone with a level of objectivity to think strategically about early actions that could help resolve the case promptly.

Your insurer may have a contractual role in selecting or approving your defense counsel. Whether or not that is the case, your insurer may provide insights that will help you navigate what can cause strain on your community and your finances.

Among the factors to consider when determining which attorneys to retain:

  • The amount of relevant litigation experience — and the outcome of similar cases.
  • Who from the firm will be lead counsel.
  • Whether principals from the firm have time in their schedule or whether the case will be delegated to someone else.
  • What the estimated cost/budget will be for handling the claim.

As you evaluate representation for your school, consider that while a specific firm might have a prestigious reputation, it might not have much time to focus on your matter or prior experience dealing with the type of claim being brought against your school. You don’t want to find yourself paying for the time it will take to bring an attorney up to speed on this type of claim or discovering you need to switch counsel if the case goes to trial.

As with so much of leading a campus community, the key is to understand the variables we can control and prioritize how we spend our time, energy and resources. Readying your team to handle problems with clear thinking and empathy, when coupled with the right legal counsel for your case, go a long way to helping your school community heal and mitigate the increasing cost of claims.


Joe Carter

Joe Carter

Vice President for Business Development and UE Experience

United Educators Insurance

Bethesda, MD


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