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A Hardening Insurance Market: What Does It Mean for Your Practice?

By Thomas J. Bryant, ARM
President, Physicians Insurance

As we slowly emerge from the grips of the COVID-19 pandemic, most of the health care–related analysis has rightly focused on immediate human concerns: the health and recovery of patients, and the mental well-being of physicians and their staff.

These issues should remain front and center for a long time to come. But it is also important to take a close look at some concerning practice liability trends that may have been overlooked during the pandemic. One of these is the trend toward rising costs in many specialty insurance markets nationwide including medical professional liability insurance (MPLI).

A hard insurance market is an upswing in a market cycle when insurance premium rates are rising significantly, often as a response to deteriorating profitability and insurers are disinclined to negotiate the increases. Premiums may rise across various lines of insurance, or in one area — such as MPLI — and the rate increases may vary across medical specialties.

We can’t blame COVID-19 for this issue. Insurance Journal reports that in 2020 medical liability insurers saw their sixth consecutive year of underwriting losses.

In addition to losses incurred beginning around 2014, the liability impact of the pandemic has likely not even been fully felt, as claim frequency dropped during 2020 due to closed courtrooms and legal backlogs. Not only have practice insurance costs been rising sharply in the past two years, but it is likely that a glut of pandemic-related claims will hit insurers, forcing further rating discipline on the underwriter perspective in the months and years to come. This may create further uncertainty in the insurance markets that can in turn influence premiums, a topic which we will discuss in greater detail in a future article.

Right now, it means physicians may continue to experience rising premiums in many areas of practice, especially hospitals and nursing homes, although some specialties have not been as severely impacted, Insurance Journal reported.

“Rate hardening is expected to gain further momentum in 2021 as unfavorable profitability trends persist…. The MPLI market still is likely to face one of its most difficult periods in a decade.”

Although this trend might not have reached your specific policy yet, the average rate of increase in the MPLI market was 4% for the third consecutive year in 2020, and a reported 6.9% increase in the first quarter of 2021, according to the July 2021 issue of the Medical Liability Monitor.

Another driver is a low frequency/high severity trend in litigation. This means that there are fewer overall paid claims found against the defendant physicians, but the payouts on cases when a doctor is found negligent are trending upward sharply. Another exacerbating factor is the cost of litigating. Even in cases where the defendant prevails, costs have risen steadily over the past decade.

These dual trends have weakened the reserve for defending claims as industry loss ratios have increased from 71% in 2011 to near 90% from 2016 to 2020. And some insurers are facing results that are much worse, as averages can be deceptive.

Conclusion

Physicians have enjoyed stable premiums for more than 15 years since the last malpractice insurance crisis took hold back in 2001. Clearly, this recent uptick in some premiums isn’t being received happily by anyone practicing medicine. The good news is that the MPLI insurers we work with here at Physicians Insurance are closely regulated by state regulators and are making efforts to strengthen the reserves they use to pay claims. Each of them has expressed a commitment to stemming the tide of rising costs over the long term, and this commitment can help reduce the impact of the financial burden on independent practices.

I can’t help but reflect back as we look toward the future. This agency found its reason for being in exactly this type of insurance climate nearly three decades ago. The Massachusetts Medical Society established Physicians Insurance because of physician members responding to multiple insurance problems faced by physicians in the 1980s, including a market crisis in malpractice insurance.
Then and now, we stand ready to assist physicians with a timely, no-cost review of their policies, and to help clients obtain alternative coverage if needed. We are here to answer your questions and address your concerns. Please contact me with questions at tbryant@mms.org, or reach another PI representative at 781.434.7525 or at piam@mms.org.

Please email Meghan Stanley at mstanley@mms.org with any topics you would like to see us cover in this space.

posted September 16, 2021