Roughly one out of every $10 paid from medical malpractice claims over the past decade was due to social inflation, according to The Doctors Company.
Social inflation is a term that describes the increase in insurance claims costs above general economic inflation.
According to the TDC study, social inflation cost insurers $2.4 billion to $3.5 billion, or 8% to 11%, of all medical malpractice losses between 2011 and 2021.
“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 White, president of TDC Group, said in a statement. “It is a reason malpractice premiums are rising for many physicians.”
While the study found social inflation in the medical malpractice market, it was not as significant in other lines. Commercial auto insurance has been hard hit by social inflation in the form of so-called nuclear verdicts.
The data showed an acceleration of social inflation beginning around 2012 and a more drastic surge in 2017. While social inflation dissipated when the Covid pandemic began, it is hard to imagine that it won’t return, TDC concluded.
According to the report, some factors could be helping keep social inflation lower in the medical malpractice space. First, the public continues to hold nurses, doctors, and pharmacists in high esteem, ranking high for honesty and ethics.
Additionally, restrictions on noneconomic damages for medical malpractice claims may help. However, things are changing in California. The Golden State recently revised its $250,000 noneconomic damages cap, which has been in place since the mid-1970s.
Starting in 2023, the limit for noneconomic damages in wrongful death claims resolved in California climbs to $500,000. The cap then increases $50,000 annually for 10 years and grows 2 percent after that.
Should other states also erode protections, medical malpractice lines could see social inflation pick up.
TDC and Moore Actuarial Consulting LLC examined loss development factors across more than a decade of physician-focused medical malpractice insurers.
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