Social Inflation Fix: Insurers Can’t Be Out Front, Chubb’s Greenberg Says

Although insurers can help to stop the growth of social inflation, they can’t lead the effort, an industry executive said during an insurance conference this week.

Evan Greenberg, chair and chief executive officer of Chubb Limited, explained that social attitudes pitting the little guy against big U.S. corporations are a key driver of the spiraling costs of jury verdicts. “We are not the sympathetic face to show” to change those attitudes, Greenberg said of insurers during the S&P Global Ratings 40th Annual Insurance Conference.

The corporations, he said, are now motivated to lead battles that will be waged state by state and county by county, noting that a social inflation fix will not be found at the federal level.

Addressing a question from Larry Wilkinson, managing director-U.S. Property/Casualty Insurance, S&P Global Ratings, about what insurers can do about social inflation, Greenberg first described the litigation industry and then jury attitudes, ultimately turning to the impact on insurers and their commercial liability customers.

“It’s a tax on society broadly. It’s about 2.5 percent of GDP now.”

“Corporate America is feeling more and more pain from this,” Greenberg said. “Casualty rates are rising. Casualty risk-sharing has been emerging as a trend over the last few years, and that has accelerated particularly with large companies. They’re feeling more of the financial burden.”

“The more corporate America feels that, the more they’re going to be incented to pool resources to address this.”

“The insurance industry has a very strong role to play, but not out front. We are not the sympathetic face to show. But at the same time, we don’t have a printing press [that prints] money. We intermediate money. And so that’s really the point. That’s why rates rise. That’s why risk-sharing rises.”

“As that pain is felt to a greater degree,…we can help to catalyze corporate America in a long-term campaign to address this,” he said, noting that addressing social inflation at a state and county level “needs a pooling of resources and effort.”

“We have been ginning up our activities in that regard” at Chubb, he said. “That is a service we can offer to society. And that’s our job.”

Greenberg started his discussion of social inflation fix by first describing the problem and noting that he doesn’t like the term “social inflation” as a label. It “covers up the precision of what’s going on,” he said. “The social part of it is an important part,” he said, referring to “the deep-seated feeling within our society, broadly among people, that big business, government and the system is rigged against…the little guy.”

“‘The little guy is the one who is suffering. I can’t get mine, and I’ve got only two places that I can exert my influence [about] what I don’t like. No. 1 is in the ballot box, and No. 2 is in the jury box,'” he said, articulating the thoughts of jurors.

Those attitudes “really play out more in litigation around corporate America, not simply business America. It’s not targeted so much at small companies… Once a business gets to a certain size, ‘you know what? You have a lot of money. You guys are doing well. That poor person who suffered, I want to see them get theirs because I wish I could get mine,'” he said, again voicing the reasoning of jurors deciding cases brought by “the litigation industry.”

“That is an industry. It has become a very large industry, and it is moneymaking. It has an incredible ability to innovate, and it’s innovated in different ways to pursue its practice of making money,” he said, pointing to litigation funding as a tool in the bag to help fuel that. “We can bet on litigation now. Class actions, individual suits—the inflation in that as a result of this ability to innovate new theories and then monetize them broadly then combines with social attitudes,” Greenberg said.

Chubb’s CEO also responded to questions from Wilkinson about topics ranging from AI to economic trends to China-U.S. relations to AI. (Related article: “AI Large Language Models Not Leaving Chubb’s Greenberg ‘Breathless‘”)

Stop Hanging Crepe and Talking About a Cold War

Asked about the economy, Greenberg said that he believes economic inflation will stay higher than 2 percent, and as for interest rates, 4.5 or 5 percent interest rates “feel reasonably normal to me,” he said, predicting they will eventually come down.

Still, “the U.S. economy overall is very strong. It’s in very good shape. It’s broad based. We hang crepe around it every other day, but the reality is we have low unemployment. This country is a jobs machine,” creating 3-3.5 billion jobs a year for the last decade or two. “That’s been our MO. The private sector in the United States thrives. Our ability to innovate, to create—it’s stunning. It’s like nowhere else in the world.”

Acknowledging issues around “smart immigration and a lack of skills in areas” needed for the future, he said, “Right now, we have a strong economy.”

The insurance industry’s growth is based on exposure, he added. “The wellhead of that exposure growth is economic activity,” he said, going on to explain why he’s bullish about insurance industry growth. “Innovation creates new areas of exposure growth. Changes in science create new areas of exposure growth. The legal environment and the dynamism around that—there’s a euphemism for you—creates exposure growth. Climate change creates exposure growth… Cyber and all that’s going on in AI create exposure growth.”

“Think beyond macroeconomic” indicators in order to evaluate the growth prospects for insurers. “I’m very comfortable we’re going to be in business for a long time and continue growing,” he said.

Greenberg went on to point to one looming economic issue that concerns him. “The real problem is the U.S. deficit, and I worry about the impact on the U.S. economy, on the dollar, on our well-being.” He stated that somewhere in the area of $34 trillion of debt outstanding today compares to $10 trillion not too long ago, without giving the time frame. “That is a problem, and we’re very short term in our political thinking. You’re never going to address the deficit without addressing entitlements. No one wants to touch it right now, Republican or Democrat,” he said.

As for China-U.S. relations, Greenberg repeated some of the ideas set forth near the end of his letter to shareholders in Chubb’s 2023 Annual Report in a section subtitled “The U.S. and China: Coexistence remains an inescapable requirement.” Using different words at the S&P conference, the CEO stressed the fact that the competing countries are deeply interconnected.

“I reject the notion that it’s a new cold war. We should not be throwing around terms like that. That’s lazy analysis,” he said, noting that the U.S. and Soviet systems competing during the Cold War were not interconnected.

“We both exist within the same system,” he said, referring to the China-U.S. relationship today as a “a rivalry and a competition within the system.”

While deeply interconnected, “at the same time we have two countries who have very different histories, very different cultures, very different systems of governance, and each wants to achieve its own vision of greatness and achieve its own vision of prosperity for its people,” Greenberg said, warning that “the planet is a small place…”

“How we manage that competition between things that we have in common, [places] where we have deep differences [and] areas where we can actually compete against each other is really the framework between us to work out.”

“You’re not going to achieve it unless you have engagement. And the notion that we shouldn’t engage and [that] conflict is coming, as many are promoting today—I reject that. That’s a self-fulfilling prophecy,” he said, noting that the two powers need to find a way to coexist—have competition but not armed conflict.

“We have a $600 billion trading relationship that is not going away. And so we’re deeply dependent and we benefit from each other. What that means is our fates are tied together,” he said, suggesting that the interconnectedness promotes stability.

While Chubb is deeply invested in China, and Greenberg has a personal admiration from Chinese people and culture, he noted that most insurers are not invested in China today. “Their risk comes disruption to trade,” he said, noting that geopolitical tensions impacting trade impact most insurers more directly.