Social inflation and health care risk management

Abstract

This paper examines the concept of social inflation as it affects medical malpractice insurance claims, a phenomenon that warrants monitoring by risk managers in health care. The authors define social inflation as the growth in the cost of insurance claims that exceeds general inflation. The authors use data aggregated from insurance company Annual Statements and from a national database of malpractice reports to estimate that social inflation added $2.4 billion to $3.5 billion to booked losses over the 10 years ending in 2021, which is between 8% and 11% of total losses. The authors’ approach is to show growth in loss development factors, a metric that property/casualty actuaries use to estimate claim costs. This approach is explained in detail. The paper concludes with commentary on how risk managers can incorporate consideration of social inflation in their overall assessment of risk.