Study: Social inflation causes up to 11% of medical malpractice losses
The Doctors Company determined that social inflation is a key driver of higher medical malpractice insurance rates.
Social inflation accounted for between $2.4 billion and $3.5 billion of all medical malpractice losses between 2011 and 2021, according to new research released by The Doctors Company, the largest physician-owned medical malpractice insurer in the U.S.
“Our research shows that the pace of settlements larger than $1 million has accelerated, and large settlements are a significant driver of social inflation,” Robert E. White, Jr., president of The Doctors Company parent corporation TDC Group said in a prepared statement. The research further indicated that the amount of medical malpractice losses attributed to social inflation during the study period accounted for between 8% and 11% of all losses in that vertical.
Social inflation “is a reason malpractice premiums are rising for many physicians,” White said.
The Doctors Company defined social inflation as something that occurs when an insurer’s average claim amount grows faster than the overall inflation rate. “When that happens, insurers are forced to increase their rates and/or decrease coverage to keep up,” according to The Doctors Company.
The Insurance Information Institute (I.I.I.) notes that the factors driving social inflation can be difficult to pinpoint but are likely to include:
- Increases in the number of outsized jury awards;
- Legal proceedings that take longer than reasonably expected; and
- Rollbacks in tort reform that overturn statutory limits on non-economic damages.
“The impact of these and other issues in the legal landscape can be intensified by third-party litigation funding,” the I.I.I. says.
The Doctors Company commissioned its study from Moore Actuarial Consulting LLC. The study examined loss development factors (LDFs), a standard actuarial metric, across more than a decade for physician-focused medical malpractice insurers. In theory, these factors should change little except for random variation. Instead, they have been rising. The study uses the increase in LDFs to estimate the impact of social inflation. In addition, the study examines data from the National Practitioner Data Bank (NPDB), a federal dataset that collects information on, among other things, malpractice payments.
The full study can be found at thedoctors.com/socialinflation.
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