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.

The 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.

The $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.

The 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.

Recognizing 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.

Also 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.

The 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.

To 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- to 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.

The 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.

Expanding 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).

Based 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.

“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).

More Data—and Evidence of Social Inflation

A 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.

Reports 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 2018-2019 period. (2024 was excluded from the analysis because some reports for that year appeared to be incomplete, the report says.)

Using 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.

“Inflationary trends that remain after the economic inflation is accounted for are evidence that social inflation is present,” the report says.

One particular analysis zeroed in on the number of reports exceeding $2 million.

“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.”

Specifically, 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.)

“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.

The 24 percent, they said, “is the highest percentage since 2001, the peak of the last malpractice crisis.”