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What is social inlfation?

What is “Social Inflation”?

 

What is social inflation?

 

We’ve all heard about inflation with gas prices, food prices. Eggs cost you around $6 a dozen, head of lettuce cost $5. That’s inflation. Hard asset dollar cost inflation, but what is social inflation? Social inflation is a little bit different. It’s a more subtle expectation of what is due to a person. Meaning that when you have an expectation of a service, or a product of a compensation coming to you; that’s higher than what it was before, you have now inflated that expectation. For example, if you go to a restaurant and you start expecting more service from that restaurant ,you have now inflated your expectations. 

 

If you have an insurance claim, and you now expect that your compensation from that insurance claim is more than what you expected 5 years ago. If you crash your car, you think well as long as they fix my car, good enough. That’s fine, but now you might expect everything to be back the way it was, new. Possibly, compensation for the lost value of your car and compensation for not being able to go to work while the car was out of service. I’m not saying this is right or wrong, I’m just saying that people’s expectations have gone higher. Meaning that what you’re going to demand from companies is higher. An article wrote about social inflation, having higher costs for medical malpractice. 

 

When somebody sues for medical malpractice, they’re not just suing further damages and to fix their medical problem. Now they want other things on top of that maybe; lost wages, or higher compensation for their troubles. Again not saying this is right or wrong, it’s just that there’s a social inflation where people want more things from whatever interaction they’re involved in. With customer service, it could be the speed of delivery. Maybe you want things shipped to you faster.

 

 We all expect more tomorrow than we received the day before. Expect that people are going to treat us better tomorrow than they did yesterday. We expect that we’re going to get more results from life because that’s just the nature of the beast. Always wanting more, and there’s nothing wrong with that. It’s just that social inflation will affect different things, that will come back later. It’ll be baked into things.

 

For example, if a company looks to keep their customers happy by shipping faster, getting the product to that customer within one business day and not four business days. They will have to do overnight shipping, they’re going have to take that cost and bake it into the price. Where now if you’re a customer, that it really didn’t matter if it gets there in a few days, you have to pay that extra price whether you like it or not because it’s baked into the price. Same thing with this case in medical malpractice. If you are a recipient of medical services through insurance or otherwise, you may find that you’re not going to get the same level of care. The care providers now have to provide more resources for these medical malpractice cases. Again they’re not taking sides, it’s just that it comes from somewhere. You might feel that it should come from the profits of the company. 

 

Well maybe it should, but what’s happening is this social inflation is gradually bumping up other things. It’s increasing prices, maybe it’s also reducing the workforce because if you have to spend more money for this social inflation as a company you might have to reduce Workforce and automate some things; maybe use chat GPT to do some automation. Use offshore people so the social inflation is kind of like a deepening spiral. Once you do one part of it,then it puts it somewhere else. It can add to the cost of a service, but also it might reduce what goes into other things that are less tangible. Workforce or employment.

 

What are your thoughts on social inflation? Where does it show up in your life as a consumer? as a business? A  member of society? Are you seeing higher demands from people for anything, whether it’s faster answers, more customer service? Is this really happening, and are there consequences that are showing up that also offset some of these advantages? Let us know in the comments below. 

 

Are you looking for more advice on insurance? Maybe real estate due to inflation? Click here to hire one of our experts to help you.

 

 

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