Change May Be Brewing for Medical Professional Liability Carriers

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After comparing data from the top 100 nationwide carriers of medical professional liability insurance, upon first glance it appeared that net income declined in 2017. However, after removing carriers that write medical malpractice as less than 50% of their business, a closer inspection of the data revealed that in 2017, net income actually increased slightly. On the surface, this might sound good. However, our experience providing actuarial consulting services to medical professional liability carriers actually makes this steady trajectory raise some alarm bells. These trends could signify a deeper issue: because the results of medical malpractice insurance have been coasting along for so many years, the line could be due for a serious shakeup.

The state of the market

Overall, what we’ve seen over 2017 is a further perpetuation of the profitability of the previous years. Actual premiums have declined, but investment gains have been high, even though underwriting income remains low. More good news is that the rate of incidents of malpractice has been in steady decline for many years. Frequency trend of claims and incidents of medical liability have diminished, thereby helping maintain underwriting profits at present rates. This is a positive trend in the industry. However, there are other less directly-related changes that are important to be aware of.

Evolving medical groups and the rise of self-insurance

One of the challenges facing medical professional liability carriers is the shifting makeup of medical groups. In the past, physicians practiced solo or in relatively small medical groups. Now, many more physicians operate under the umbrella of a hospital or significantly larger healthcare provider. The bottom line is that the market for physicians’ insurers is shrinking. Hospitals and healthcare providers are increasingly forming their own captives and paying their own claims. This overall trend is shifting dollars away from insurance carriers toward alternative risk vehicles.

In a limited market pool, it pays to be proactive

In terms of gaining market share, there are not many more physicians that a carrier can reach. However, you can take steps to increase the attractiveness of your offerings to entice medical groups and single practitioners, including reviewing recent rate filings to compare your rates with the competition. This can present a bit of a challenge since not a lot of companies have changed their rates lately because the line has been so profitable. Carriers are more inclined to file with the state when increasing rates; if things are going well, many carriers are reluctant to lower rates. However, this is where it can pay off to work with an experienced insurance actuarial consulting services partner. For example, at Perr&Knight, we track filings across all jurisdictions, so we can see who is changing their rate filings—and the justification behind it. This intel can help you determine how best to amend your rates to become more competitive.

What’s ahead for the future?

Underwriting income gains have helped support profitability for this line, but these gains have been minimal. Carriers have relied on reserve takedowns to increase underwriting profitability. However, this trend is decelerating. At some point, it will likely swing in the opposite direction as actuaries begin to underestimate reserves on prior years. If (or actually—when) this happens, carriers will need to increase rates.
Because medical professional liability insurance has been such a profitable line for so long, carriers tend to adopt an “if it’s not broken, don’t fix it” attitude. However, this complacency could lead to financial setback down the line if you aren’t keeping one eye trained on the future to make sure you get ahead of the change that may be percolating just beneath the surface of the marketplace.