Inflation adds $4 billion to malpractice losses, study finds

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Economic and social inflation have added an estimated $4 billion to insured medical malpractice losses over the past decade, according to a new analysis commissioned by The Doctors Company.

The study, conducted by Moore Actuarial Consulting, found that inflation accounted for 11% of total booked losses between 2015 and 2024 — a $1.6 billion increase from estimates in a similar 2023 report.

Social inflation, defined as claims costs rising faster than overall inflation, has become a particular concern for insurers. Although economic inflation surged in 2021 and 2022, analysts noted that claim development factors have continued to rise even after adjusting for economic conditions.

Larger settlements, more frequent high-dollar claims

The report highlights a sharp increase in claims exceeding $1 million and $2 million. Adjusting for inflation, the frequency of $2 million-plus reports rose from 1.9% in 2013 to 3.2% in 2023. Payments on such claims accounted for 24% of total malpractice payouts in 2023, the highest share since the early 2000s.

This aligns with findings from Milliman, which reported average annual claim severity growth of 5% between 2014 and 2023, driven largely by multimillion-dollar settlements.

The COVID-19 pandemic temporarily slowed the escalation of high-dollar claims, as courts closed and complex cases were delayed. By 2023, frequency and severity rebounded. The number of reports filed to the National Practitioner Data Bank returned to pre-pandemic levels, with average paid amounts climbing to their highest point in nearly two decades.

Litigation financing

The report also flags third-party litigation financing (TPLF) as a potential driver of rising costs. Under these arrangements, private investors fund lawsuits in exchange for a portion of settlements. While difficult to track, actuaries at consulting firm EY estimate TPLF could cost insurers $13 to $18 billion over the next five years, with a possible high of $25 billion.

Insurers under pressure

Medical malpractice insurers have posted negative underwriting margins in recent years, with losses accelerating after 2019.

Nearly half of respondents in a 2024 Medical Liability Monitor survey said their rates had increased, compared with just 14% in 2018.

“Physicians are facing rising premiums driven by both economic pressures and the continued increase in large settlements,” said Robert E. White Jr., president of TDC Group. “We will continue to research and raise awareness of this concerning trend that affects physicians and patients.”

The report concludes that both economic and social inflation are reshaping the malpractice insurance market as higher claim costs likely drive further premium increases. For physicians and practices already contending with financial pressures, the trends point to more volatility ahead.