Medical Malpractice Claims and the Impact of Social Inflation

Oct 09, 2023 at 09:20 pm by Staff


 

Using insurance company annual statement data, the “Medical Malpractice Claims-Made Social Inflation and Loss Development Report” estimates that in the decade ending in 2021, between $2.4 and $3.5 billion, or 8 to 11 percent, of all medical malpractice losses incurred by physician-focused insurers stemmed from social inflation.

The Doctors Company engaged Moore Actuarial Consulting, LLC, to determine the degree of social inflation, if any, that is present in the U.S. medical malpractice claims-made market for physicians. Social inflation 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.

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 used the increase in LDFs to estimate the impact of social inflation. In addition, the study examined data from the National Practitioner Data Bank (NPDB)—a federal dataset that collects information on, among other things, malpractice payments—and the study showed that the pace of settlements larger than $1 million has accelerated. Large settlements are a significant driver of social inflation.

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