Reader Response

Board Transparency and Social Inflation

Dear Editor:

Thank you for an excellent edition (AR September-October 2022). I found it very informative and have comments on the following items: I commend the movement to greater transparency to CAS members regarding CAS Board discussions and actions. Having served on a town Board of Education, I’ve seen how having a public and transparent discussion eases the concerns of affected parties and sometimes can lead to more thoughtful analysis by the policy makers. On the discussion of social inflation, I am concerned that many involved in the analysis don’t consider the split between economic and non-economic damages. Having served on several civil juries, I was made aware of the timing of the purchase of goods and services (i.e., economic damages) related to an injury/accident versus the timing of the final claim settlement or jury trial. Economic goods are purchased soon after the injury/damage, reflecting the price levels soon after the accident, while non-economic costs reflect the social inflation at the time of the settlement or payment. (No one is going to wait several years for the court case to settle before going to the doctor, fixing the car, or repairing the house.) Some of the social inflation analyses discussed assumed that the claim payments reflect the CPI level at the time of claim payment rather than the CPI level around the accident date. This is an erroneous assumption. It is important in such analyses to be aware of the split between economic and non-economic goods, and when the value of those goods is being set.

—Ralph S. Blanchard III, FCAS, MAAA