the impact of social inflation on insurance premiums

by | Jul 26, 2022

Social inflation is a buzzword insurers use to explain the rising costs of insurance claims resulting from primarily increasing litigation arising from more plaintiff-friendly legal decisions and larger compensatory jury awards.

While many industry experts put it down to general anti-corporate sentiment going back to the financial crisis, frustration over the health industry’s handling of the COVID-19 pandemic could play a large part in the acceleration of the impact of social inflation.

excessive payouts

The payouts awarded by juries over the last year have been breathtaking.

In May of this year for instance, a Minnesota a jury awarded $111 million in damages to a college student in May after a hospital and an orthopedic surgeon were found to have been negligent in treating his broken leg.

In April, a jury in Kansas City awarded $25 million to a family after an ob/gyn and hospital were found to have failed in properly treating a mother in labor, which caused brain damage to her infant.

But it’s not just the medical industry that is suffering. The trucking industry has been particularly hard hit. In recent years, there have been a number of instances where trucks were involved in an accident they were not responsible for and where they probably shouldn’t have even been found to be negligent – they were just basically in the wrong place at the wrong time – but because of the injuries sustained by other parties, verdicts of between $30 million and $100 million were awarded against the trucking company.

a change in attitudes

“People look at the world differently than they did 2 years ago,” said Bill Burns, a director of insurance research at Conning. “A jury may have awarded $5 million for a claim a few years ago. But then the pandemic hits, and we have the George Floyd incident, and we have people out of work and a shortage in baby formula. Yet, companies are still making a lot of money and many insurance companies are turning record profits. Today, that jury may look at a sympathetic malpractice victim and award $10 million for the same claim.”

With most people seeing a greater separation of wealth between the general population and large corporations, there’s just generally a feeling that someone needs to pay when someone has suffered damage or an injury, regardless of negligence.

This trend in awards corresponds with an upward trend in abuse and violence toward medical professionals. Hospitals across the country are reporting an increase of assaults on nurses and doctors. St. Mary’s Regional Medical Center in Maine for instance, reported about five times as many assaults on staff members in 2021 as there were in 2019.

One of the main reasons for this is that this trend in social inflation was further exacerbated by the COVID-19 pandemic. The health care industry has come under immense scrutiny for its handling of the pandemic, and this translated into a more hostile environment for health care providers.

Frustrated people often in pain and discomfort are forced to endure long delays in treatment and restrictions on visiting family who are hospitalized. While much of the blame should rest squarely on the shoulders of the government, people are lashing out at whatever target they can find and that often happens to be the health industry.

explaining rising premiums to medical clients

The impact of this on insurance premiums for health care providers has been dramatic. According to a study by consulting firm Milliman, average medical professional liability insurance rates had already increased by 35% from 2017 to 2019.

 Investment management firm, Conning found that direct premiums written for physicians increased a further 7% in 2021 (from $5.01 billion to $5.36 billion).

 Insurance premiums are expected to continue to rise through the coming years as insurers account for the increased risk. This is likely to put even more financial pressure on an already struggling health system.

 Insurance agents may experience resistance from some medical clients on the rising premiums. Medical practitioners point to a reduced number of claims against them in the last two years, for instance.

According to Medscape’s Malpractice Report of 2021, while 52% of primary care physicians were sued in 2019, just 42% were sued from 2020 through mid-2021. Similarly, 62% of specialists were sued in 2019, but just 56% were sued from 2020 through mid-2021.

The main reason for this is that many courts were closed as a result of the pandemic so fewer cases were heard. This backlog of claims that is starting to reach the courts, combined with the trend in awards, is the reason for premium increases.

 

About Michael Richards

Working in the specialty chemical business supporting heavy manufacturing for 18 years before a career in insurance served as great training ground for Michael. Serving a variety of businesses and industries introduced him to creative business thinking and processes he brings to Westwood in his role as business manager. As a result, Michael helps Westwood differentiate by listening and responding to client’s problems with a more holistic approach.
More about Michael Richards

other articles that may interest you

Social Media presents an deluge of challenges for Medical Facilities

Unacceptable behavior by physicians and healthcare professionals is on the rise, corresponding with increased attacks on physicians by patientsLive streaming of surgical procedures, particularly plastic surgery has become increasingly popular in recent years and while...

Could the technology behind Bitcoin help secure medical records?

Cyber security is a growing problem for healthcare providers, who often struggle to keep the records of their patients secure. Cyber insurance coverage is not generally mandated by law and many healthcare organizations remain uninsured, even though laws and...

Agents should work with a good medical malpractice broker

Just another mouth to feed is possibly the first thought when considering the use of a wholesale broker, and in many instances there is an element of truth to that. When you set out working as an independent agent, as with any other field, there is a temptation to “do...

A lesson in Liability Insurance for Chiropractors

A visit to the chiropractor for a 32-year-old patient in Georgia recently led to a $75 million medical malpractice verdict. The claim related to emergency treatment the patient received after collapsing with a brainstem stroke, resulting from chiropractic manipulation...

Liability mitigation is essential for senior living facilities

The senior living industry is under the microscope as more and more people are affected by COVID-19. With two million of America's most vulnerable people currently in senior living facilities and nursing homes, it is essential that the industry looks seriously at...

Senior Care Facilities Rethink Operations post COVID-19

With workers in elder care facilities leaving the industry in droves, assisted living and skilled nursing facilities continue to face pandemic problems. A Morning Consult poll from September 2021, found that 20% of healthcare workers quit during the pandemic, while...

GenStar™ – Stability in an uncertain market

The healthcare industry has been rocked with more change in the last two years than we've seen in decades, which has led to uncertainty for insurers. The pandemic and the associated implementation of government policies left many people with negative perceptions of...

insurance for hospitals

Hospital Insurance typically covers all or part of the potential liability for hospital services. It includes medical malpractice, accidents involving hospital employees and equipment, care during surgery or any other invasive treatment, after-hours care arrangements by staff who need help with their children and more.

insurance for long term care facilities

Long term care facilities must protect themselves against potential liability arising from incidents within their facility. Westwood can help you negotiate a package tailored to your long term care facility client.

insurance for physicians

The different types of insurance for physicians includes medical malpractice insurance, professional liability insurance, errors and omissions insurance, an umbrella policy, and professional indemnity. As a physician, you should have access to all of these types of insurance.