On the Cusp of the Next Medical Malpractice Insurance Crisis

Medical malpractice claims are dwindling. Total payouts are far lower than during the 2002 crisis. Yet, insurance industry profits have been sinking for a decade and are nearly in the red. After a dozen years with a “soft” insurance market, we are now on the cusp of yet another malpractice insurance crisis. How can profits be in peril if claims have dwindled and payouts are historically low? Answering that question requires an understanding of the insurance cycle. The cycle periodically transforms gradual increases in costs and gradual decreases in revenue into explosive increases in premiums. The industry’s financial statistics today eerily resemble those leading into the 2002 crisis. However, some important differences also exist. Perhaps most importantly, the coronavirus pandemic introduces a variable that makes the current transition from a soft market to a hard one unique. In addition, industry representatives have recognized the signs of a hardening market earlier in the transition than they have in the past and that may enable them to engineer a less painful transition from a soft market to a hard one. The stakes are high. After each of the three prior crises, physicians, hospitals, and insurers descended on state capitals and lawmakers responded with waves of restrictive tort reform. This Article explains how we have come to sit on the cusp of a fourth medical malpractice crisis and examines the factors that will determine how soft our landing will be.