Impact of Social Inflation on Professional Liability/Medical Malpractice Litigation

December 22, 2021

The term ”social inflation” was coined in the insurance industry to explain the rise in insurance claims due to a shift in societal trends and the public’s view of litigation. Over the last several years, we have seen oversized verdicts (also known as nuclear verdicts) in the tens and even hundreds of millions of dollars awarded to claimants by sympathetic juries. Third-party litigation funding, in which hedge funds and other financiers invest in lawsuits in exchange for a percentage of any settlement or judgment, distrust of corporations and an awareness of social injustices among jurors, aggressive advertising by attorneys, the influence of social media, higher medical costs, and other factors have all impacted several lines of insurance including Commercial Auto Liability, Excess Liability, Directors & Officers Liability, and Professional Liability/Medical Malpractice Liability. We have seen an increase in rates, capacity challenges, and coverage restrictions and exclusions as insurers look to regain underwriting profitability.

Social Inflation and the Medical Malpractice Insurance Market

From 2014 to 2018, the number of medical malpractice verdicts in excess of $25 million more than tripled, according to a report presented at PLUS Symposium. In addition, from 2010 to 2019, the average of the top 100 jury awards for medical malpractice cases rose by almost half, according to Conning Research. These mega-verdicts continued up until the pandemic when the courts closed and, in time, we will see whether a similar environment of runaway awards and settlements will continue, as well as the extent of the effect COVID-19-related claims will have on Medical Malpractice insurance.

One driver of higher verdicts is the consolidation of healthcare. Large corporate defendants make for attractive deep pockets in the eyes of sympathetic juries – in line with the social inflation concept.

As a result of the severity of these claims, the Medical Malpractice insurance market hardened in the last few years with higher rates, although we are now seeing rates begin to moderate as compared to previous quarters. This is in part due to new entrants in the space. Preferred risks, for example, are experiencing single-digit rate increases while tougher venues and those with poor claims history are seeing large rate increases on renewals. Rate predictions for Hospital Professional Liability insurance are between 5% and 25% and between 5% and 15% for Allied Health and physicians.

Manchester Specialty provides Entity Professional Liability coverage for each of the business risks we insure – from Home Care to Allied Health Care and Human/Social Services organizations. We can tailor a policy to address the specific exposures of each health care niche, depending on the types of services they offer and the location where care is provided. For more information about how our products and services can help protect your insureds, please contact us at 855.972.9399.