The Expert Podcast

What is social inflation? We've all heard about inflation with gas prices, food prices, eggs costing six bucks a dozen, and a head of lettuce costing five bucks. 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, a product, or 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 what your expectations are. If you have an insurance claim and you now expect that your compensation from that insurance claim is more than what maybe you expected five years ago, maybe 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—and maybe compensation for the lost value of your car and compensation for you not being able to go to work while the car was out of service.

This I'm not saying 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. Here's an article from Casualty 360, where it talks about social inflation having higher costs for medical malpractice. When somebody sues for medical malpractice, they're not just suing for damages and to fix their medical problem; now they want other things on top of that—maybe lost wages, maybe 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 with. Customer service, for example, 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. We 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 wanting more. There's nothing wrong with that. It's just that this social inflation will affect different things that will come back later. It'll be baked into things. For example, if a company realizes, "Look, to keep our customers happy, we have to ship faster. We have to get the product to that customer within one business day, not four business days." So we have to do overnight shipping. They're going to have to take that cost and bake it into the price. So now, if you're a customer where 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.

The same thing with, in this case, 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 because 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, right? You might say, "Well, 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, like 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 the workforce and automate some things—maybe use chat GPT to do some automation or maybe use offshore workers.

So, the social inflation is kind of like a deepening spiral. Once you do one part of it, then it puts pressure somewhere else. It can add to the cost of a service, but it might also reduce what goes into other things that are less tangible, like workforce or employment.

What are your thoughts on social inflation? Where does it show up in your life—as a consumer, as a business, or just a member of society? Are you seeing more 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?