Liability excess inflation
Still a key challenge for insurers and their clients
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Liability excess inflation (LEI) is driven by non-economic factors. To date, we find that LEI has been most elevated in the US, volatile in the UK and Australia, and muted in Germany.
Figure 1: Swiss Re Institute Liability Excess Inflation index readings for select countries
From an insurance industry perspective, we measure LEI as the difference between claims severity growth and growth in economic claims inflation factors. Economic factors like medical inflation and rising wages explain only part of the growth in liability insurance claims. Non-economic factors such as changes in material law, ease of access to litigation, increased use of third-party litigation funding and rising litigation awards have been a main source of LEI.