Why Demands for More Could Cost You More: Understanding Social Inflation

Have you heard of social inflation? It’s different from hard asset dollar cost inflation, which is what we experience with rising prices of things like gas, food, and eggs. Social inflation refers to the subtle increase in expectations people have when it comes to the services, products, or compensation they receive. For instance, if you go to a restaurant and expect more service than before, you have inflated your expectations. Similarly, if you file an insurance claim and now expect more compensation than you did five years ago, you have also inflated your expectations. This doesn’t necessarily mean it’s right or wrong, but it does mean that people are demanding more from companies. According to an article in Casualty 360, social inflation has led to higher costs for medical malpractice.

When someone sues for medical malpractice, they’re not only seeking damages to fix their medical issue, but they may also want additional compensation such as lost wages or higher payouts. This isn’t necessarily good or bad, but it’s part of social inflation, where people expect more from every customer interaction, such as faster delivery or better treatment. We always want more, and that’s okay, but social inflation has consequences. For instance, a company may realize they need to offer faster shipping to keep customers happy, but this comes at a cost that gets baked into the price. Similarly, medical providers may need to dedicate more resources to medical malpractice cases, resulting in reduced quality of care for other patients.

It’s important to note that discussing social inflation doesn’t necessarily mean taking sides. The concept arises from somewhere, and one might argue that it should come from a company’s profits. However, social inflation is gradually affecting other areas, such as increasing prices and reducing the workforce. To accommodate the increased costs of social inflation, a company may need to automate processes or outsource work, and this can set off a chain reaction that impacts other aspects of the business. This deepening spiral can add to the cost of service while reducing what goes into other areas like the workforce or employment. As a consumer, business owner, or member of society, you may have noticed higher demands from people for faster responses, better customer service, and more. It’s essential to consider whether this is happening and whether there are any consequences that offset the advantages.