A recent actuarial analysis estimates that inflation has added approximately $4 billion to medical malpractice insurance losses in the U.S. over the past decade, focusing on policies issued on a claims-made basis for physicians. The study, conducted by Moore Actuarial Consulting, LLC for The Doctors Company (TDC), distinguishes between economic and social inflation by analyzing historical loss data and development patterns.
The $4 billion figure was calculated by comparing actual reported losses—totaling $36.6 billion over ten years—against a modeled projection of $31.7 billion that assumed inflation levels from 2010. This $4.9 billion difference was adjusted downward to $4 billion to account for reserve redundancies in the industry. According to AM Best’s May 2025 report, the medical malpractice sector holds an estimated $1.3 billion in excess reserves. Since the TDC/Moore analysis covers about 70% of the market—specifically physician-focused coverage—the actuaries applied a proportional $910 million adjustment, resulting in the final $4 billion estimate.
The research also examined paid loss development factors across a 15-year claims triangle, tracking how losses evolved from initial reporting through five years. The calendar-year factors for the 12- to 60-month period showed a post-pandemic rise: 12.006 in 2021, 15.430 in 2022, 16.860 in 2023, and 15.386 in 2024. While these figures are below the peak of 19.015 recorded in 2018, they align with trends seen during the early 2010s, suggesting a resurgence of inflationary pressures.
A secondary analysis compared actual loss emergence with expectations based on more recent loss development averages. Results showed that losses emerged faster than anticipated in eight of the last ten years, excluding 2020 and 2021 due to pandemic disruptions. This discrepancy accounts for $2.4 billion in excess losses, reinforcing the conclusion that inflation has consistently influenced claims outcomes.
Further insights were drawn from the National Practitioner Data Bank (NPDB), which records malpractice payments by year of disbursement. The average payout rose from around $369,000 between 2012 and 2017 to $424,000 in 2018–2019, then to approximately $458,000 in 2022–2023—an 8% increase. After adjusting for general economic inflation using CPI indices, the remaining growth points to social inflation.
One key indicator is the rising frequency of high-value claims. After inflation adjustment, reports exceeding $2 million began increasing in 2014, paused during the pandemic, and resumed climbing in 2023. The share of such reports rose from 1.9% in 2013 to 3.2% in 2023—a more than 60% relative increase. In dollar terms, 24% of all trended payments in 2023 surpassed $2 million, up from 15% in 2013. The report notes this is the highest proportion since 2001, during the previous malpractice crisis.
— news from Carrier Management
— News Original —
Inflation Hits Med Mal: Actuaries Estimate $4B for Economic + Social
An actuarial report published earlier this month put a $4 billion estimate on inflation’s effect on medical malpractice insurance losses over the last decade, without gauging the separate impacts of economic and social inflation. n nThe report, “Nuclear Verdicts and Rising Costs: How Inflation Is Impacting Medical Malpractice Claims,” focusing mainly on physician malpractice losses from U.S. policies written on a claims-made basis, was announced by The Doctors Company. TDC engaged Moore Actuarial Consulting, LLC, to determine the degree of increasing inflation that is present in that market. n nThe $4 billion figure was derived by comparing an estimate of total losses that would have been predicted to emerge during the last 10 (calendar) years, assuming the inflationary environment that existed a decade ago, to actual booked losses. Some technical discussion in the report and appendices reveals that the actuaries came up with the estimate of what would have been expected by applying three-year average paid loss development factors as of Dec. 31, 2010 to the latest level of paid losses in all prior accident years relevant to the calculation. n nThe analysis first shows that the estimated ultimate losses would have been $31.7 billion—or $4.9 billion less than what insurers booked, $36.6 billion. n nRecognizing that other analysts have indicated that the booked numbers are actually more conservative than they need to be, the actuaries went a step further to lower the $4.9 billion to the $4 billion headline amount. Referencing an AM Best May 2025 report on the medical professional liability insurance segment, the actuaries noted AM Best’s estimate of a $1.3 billion redundancy in booked reserves for the whole medical malpractice industry. n nAlso adjusting for the fact that the TDC/Moore analysis doesn’t cover the entire U.S. med mal insurance market, focusing instead on the 70 percent related to physicians coverage, the actuaries estimated a $910 million redundancy (70 percent of $1.3 billion) for the physicians segment of the medical malpractice insurance industry—bringing the estimated impact of increasing inflation down to $4 billion. n nThe analysis leading to the $4 billion estimate is actually the second analysis presented in the report. The initial analysis in the report confirmed to the actuaries that increasing inflation is indeed impacting the U.S. medical malpractice claims-made insurance market for physicians. n nTo do this, actuaries looked at the product of paid loss development factors along 15 diagonals of an aggregated Schedule P paid loss development triangle for the medical professional liability claims-made line for physicians insurers. The factors essentially revealed how paid losses increased from first report at 12 months through the 60-month evaluation level. Noting that a steady increase in these calendar-year 12-60 month loss development factors would be a sign of increasing inflation, the authors found a general post-pandemic rise in these factors: 12.006 for CY 2021, 15.430 for CY 2022, 16.860 for CY 2023 and 15.386 for CY 2024. n nThe latest factors, they note, are comparable to factors calculated for 2013 to 2015—”the early stage of increasing inflation.” The recent factors, however, were lower than those recorded from 2017 to 2019, which came in as high as 19.015 for 2018. n nExpanding on this, the actuaries performed an analysis similar to the one that led to the $4 billion inflation cost estimate. Here, they compared actual with expected emergence where expected emergence was based on an average loss development factors from the three latest years (rather than the factors as of Dec. 31, 2010). n nBased on this analysis, they found that losses actually emerged faster than expected in seven of 10 years. The exceptions were 2016 (which showed little difference between actual and expected) and the pandemic years. n n“This is evidence that increasing inflation has been affecting the portfolio through the decade and has re-emerged post-pandemic,” the report says, revealing a $2.4 billion higher-than-expected loss emergence for eight of the last 10 years (excluding the pandemic years 2020 and 2021). n nMore Data—and Evidence of Social Inflation n nA later section of the report focuses on data from the National Practitioner Data Bank, a federal database that has collected information about malpractice judgments since 1990. n nReports in the database are classified by year of payment (not year of occurrence or the year a claim was made). Here, they found that the NPDB average payment per report rose to $424,000 in 2018 and 2019, from a relatively constant level of about $369,000 in the years 2012-2017. In 2022 and 2023, the average looked more like $458,000, representing an 8 percent jump over the 2018-19 period. (2024 was excluded from the analysis because some reports for that year appeared to be incomplete, the report says.) n nUsing this data, the actuaries were also able to adjust reported payments for economic inflation—using Consumer Price Indexes (CPI-All Urban and CPI-Medical Care) to trend the report NPDB data to year-end 2024. n n“Inflationary trends that remain after the economic inflation is accounted for are evidence that social inflation is present,” the report says. n nOne particular analysis zeroed in on the number of reports exceeding $2 million. n n“After adjusting for economic inflation, the frequency of reports in excess of $2 million relative to the total number of reports began growing in 2014 and paused in 2020 and 2021 for the pandemic. The trend reappeared in 2023. This is evidence of social inflation.” n nSpecifically, a graph in the report shows that the frequency of trended reports in excess of $2 million climbed to 3.2 percent in 2023 from 1.9 percent in 2013. (Editor’s Note: Frequency is defined as the number of reports divided by the total number of reports.) n n“The change of 1.3 percentage points (1.9 percent in 2013 to 3.2 percent in 2023) might seem subtle, but it is significant,” the report says. The percentage jump from 1.9 percent to 3.2 percent is more than 60 percent. In addition, focusing on dollar amounts, the actuaries found that 24 percent of total trended payments for the 2023 report year exceeded the $2 million threshold—up from 15 percent in 2013. n nThe 24 percent, they said, “is the highest percentage since 2001, the peak of the last malpractice crisis.”