Healthcare Professional Liability pt.2, Social Inflation

In my last article I mentioned that two of the factors impacting the cost of healthcare professional liability are changes in patient expectations & demands along with nuclear verdicts. In this week’s article I’d like to focus in on those two and how they’re being driven by inflation.

Now, when I say inflation I’m not talking about the same inflation we see on the news or experience firsthand when we’re paying for goods or services. The inflation I’m referring to is social inflation. Social Inflation is broadly defined as the noticeable rise in insurance companies liability costs above and beyond what used to be considered fair & reasonable.

Over the last decade, but significantly more so over the last 5-6 years, there has been a sharp increase in the number of judgements that exceed $10,000,000. These have earned the label of nuclear verdicts and I’m sure I’m not the first person who you’ve heard use that term.

There are a variety of causes for the impact of social inflation on these judgements; the distrust in large corporations & institutions, litigation finance, a media that largely only reports on eye catching verdicts while failing to report when the verdicts are appealed & reduced, a growing demand for accountability and other factors are all influencing juries.

Each of these factors is driven by social inflation. Many individuals see healthcare as a right, not a service. Furthermore, those same individuals see healthcare providers, especially large healthcare organizations, as wealthy, greedy and out of touch with the struggles that they’re facing. Keep in mind that it doesn’t matter if their assumptions and beliefs reflect reality or not, it’s just part of what leads them to their decisions.

At the same time, these individuals are coming to expect more from their healthcare providers. They’ve seen both the cost of their insurance and their out of pocket expenses increase year after year so they expect an increase in the service provided as well. With increased demand comes a more emotional response when those expectations are not met.

Whether or not your organization has experienced an allegation of malpractice, the underlying implications of social inflation exist and already are impacting your practice or health system. You’ve undoubtedly seen your premiums increase, a reduction in coverage available, both on primary & excess policies, and you may have even had judgements go against your organization that resulted in significantly more damages than you expected.

One thing I’ll say with a lot of confidence, social inflation will not reverse. In fact, if there is any progress at all it will either get worse before it gets better, or the change will come in the shape of tort reform. That being said, you can’t wait for either of those things to happen so I’m sure you either already have or are now asking yourself, what can I do to protect myself and the organization I work for?

My first recommendation to you is to make sure that you trust whoever you’re purchasing your professional liability from. However, if they are not taking the time to walk you through your policy, including conditions, definitions, insuring agreement, exclusions and endorsements, don’t let that trust blind or prevent you from doing your own due diligence to make sure that the policy itself isn’t limiting or excluding coverage in situations that could impact you.

Second, I would recommend that you and your leadership develop a response strategy for all future allegations of malpractice. The best time to strategize how the organization will respond is before you need to. Your strategy should be comprehensive and not only based on the experiences your organization has been through but also taking national trends into consideration.

Third, make sure your professional liability limits adequately reflect the risk your organization faces. Independent practitioners, physician groups, chains of urgent care clinics and health systems will all have differing needs. As I’ve mentioned previously, you may have seen reduced limits available to you when you’ve gone to renew your polices so how should you overcome that?

Explore all the options that are available to you. This is generally done most effectively when working with an agent that provides you with a comprehensive list of the markets they intend to approach as well as their response. The right agent will not only be able to provide you with adequate primary limits but has the relationships required to find the broadest and most affordable excess options as well. Lastly, find an agent and / or carrier who can provide you with options like excess verdict liability.

Excess verdict liability functions as a reserve excess policy that’s only triggered in the event of a verdict against your organization. This policy not only provides the excess liability that proves valuable when juries award exorbitant amounts in favor of plaintiffs but can also help protect traditional excess limits. This helps keep your excess loss runs cleaner which leads to lower increases at renewal.

If your organization is anything like most of the ones I work with, your professional liability coverage is the most expensive of all your insurance policies and could even be a top 5 operating expense. If you want to take more control of not only your costs but your risk, tune in next week for another article where I’ll provide more details about how to do just that.

About the author – Drew Colwell is a commercial insurance agent & risk manager who specializes in working with nonprofit organizations, healthcare providers and other human service related businesses all over the US. If you would like to contact him his contact information is below.

Phone: 406-204-3666



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