Fifteen years into the soft market cycle, it shouldn’t come as a surprise that the Medical Professional Liability (MPL) market is turning around. Many will remember that the Long-Term Care (LTC) market began to show signs of hardening in 2017, and the Hospital segment began to follow suit in the second quarter of 2019. While the Facilities and Physician segments have lagged behind, they’re also turning the corner toward a firmer market. While the COVID-19 pandemic is to blame for many current challenges, this hard market was well on its way prior to the pandemic. In actuality, the battle against COVID-19 has functioned in many ways as a temporary pause button for the MPL marketplace, giving insureds a short period of respite due to moratoriums on litigation. However, significant market changes are anticipated for the remainder of the year and beyond. Understanding the 5 primary drivers of the tightening market can be important to helping clients comprehend the changes that are coming.
INCREASED CLAIM SEVERITY & FREQUENCY
In the wake of the last hard market that ended in 2006, tort reform, in conjunction with advances in risk management and patient safety, initially reduced MPL claim frequency and severity.2 However, over the past decade, some of those reforms have been overturned in various states, and the MPL market has begun experiencing an increase in claims severity as plaintiff ’s lawyers utilize increasingly sophisticated tactics to boost client cases.2 Even as severity began to increase, rates remained low because there wasn’t a commensurate increase in frequency. Unfortunately, in 2019, this trend started to reverse as claim frequency also began rising.
Research indicates that in 2019, more than 30 jury awards of over $10 million each, resulted in a combined total of more than $1 billion in medical liability verdicts. In addition, the average number of claims costing more than $7 million has increased by greater than 200% in recent years, and claims worth more than $1 million represented almost 60% of the market between 2016 and 2018, an increase of more than 50% over the previous 10 years.2 Such severe legal verdicts, along with the higher frequency is driving loss ratios toward 110% and eroding the profitability of insurers.
Due to these trends, the standard markets have begun increasing rates and issuing non-renewals or cancellations, especially in the Physician segment. Currently, most carriers on the standard side are looking to make corrections via rate rather than underwriting selection. However, if these rate adjustments don’t yield the results carriers need, it’s anticipated that a further increase in non-renewals will follow.
In addition, the pandemic-inspired moratoriums on litigation that are currently still in effect across many states mean insurers have seen fewer 2020 losses because the courts have been closed. It’s likely moratoriums will begin to lift closer to the deployment of a vaccine, and once they end, it’s anticipated that claim rates will spike, making it difficult to accurately determine 2020’s true loss ratios. The rising claim frequency, severity of losses, and an increasingly litigious environment, have made some classes and venues especially difficult.
Because it remains unclear what actual claim ratios and litigation will look like as 2020 ends, the tough-to-place classes are only getting tougher. Historically, some classes have always been harder to place, such as correctional healthcare or locum tenens. For these tough classes of business, it’s now become almost impossible, with only 1 or 2 carrier options available. For those that can still obtain the coverage, the cost is skyrocketing. It’s also likely that additional classes, such as general healthcare staffing, social services, behavioral healthcare, and obstetrics/gynecology, will become more difficult to place, and hostile venues will see a higher number of non-renewals as potential risks are evaluated more closely. Previously, the E&S side didn’t see much of this business because it generally stayed in the standard market. Now, the primary coverage for these risks is harder to find, and excess that matches the expiring programs is extremely challenging due to both tighter terms and price.
At the beginning of 2020, non-renewals were already occurring in the areas of obstetrics/gynecology and neurosurgery out of traditionally bad venues like West Virginia. Jurisdictions like New York City, Philadelphia, Cook County in Chicago and Dade County, Florida are known for their severe verdicts, but venues that have previously been considered more moderate ground, including the West Coast, Midwest, New England, South Carolina, and Georgia, have started to move toward harsher verdicts as well.4 In these areas, the severity and frequency of claims have generated massive rate increases on very large accounts.
While the pandemic has slowed the development of some marketplace trends, it also presents a new opportunity for claims. Coronavirus-related claims have already begun to emerge from the senior living sector, raising concerns among carriers about where the next line of COVID-19 claims will come from. The liability issues around elective surgeries, telemedicine visits, reduced availability of preventative care, or delayed diagnoses related to the pandemic are unclear. It is also unclear what level of immunity will be granted to facilities and providers against claims stemming from the virus. Because they have no real means of forecasting what losses and litigation will look like related to the pandemic, carriers will approach MPL business more conservatively.
REDUCED APPETITE & CAPACITY
After previously experiencing a hard market from 1998 to 2006, the MPL industry had amassed reserve redundancies that allowed insurers to benefit from $2 billion of reserve development. Then in 2014, the industry recorded its first underwriting loss since 2005. Since, the average annual combined ratio has hovered around 104% and the reserve development had dropped to around $1 billion by the end of 2018. Due to several years of intense competition during a prolonged soft market, it’s expected that MPL’s combined ratio will continue to worsen over the next several years, further reducing appetite and capacity.1
There are now fewer and fewer carriers willing to compete for standard market deals. Brokers are reporting that at least 6 carriers have either left the healthcare market or drastically cut their appetites to nearly nothing. Additional, multiple risk retention groups have exited due to insolvency. In the past, carriers have been capitalized well enough to weather blips in profitability, but there is so much uncertainty that it’s now difficult to forecast losses. It’s anticipated that the number of non-renewals will dramatically increase, capacity will be harder to find, and rates will rise substantially as carriers batten down the hatches and critically review their books.
HEALTHCARE STRUCTURE CHANGES
Changes in appetite and capacity can also be attributed in part to the way healthcare delivery has changed over the last several years. The lines between facilities and providers have begun to blur. Many doctors and staff members are now employees of hospitals or integrated healthcare systems. These larger systems also own hospitals, physician offices, and other facilities across multiple states or countries.1 The increase in merger and acquisition activity between insured hospitals and physicians has resulted in a smaller insured base, requiring insurers to reach outside their normal comfort zones to hit appetite levels. M&A activities on the carrier side have also impacted risk appetites and capacity.
HOW AGENTS CAN HELP PREPARE CLIENTS
Manage Client Expectations. Retail agents and brokers will have a key role to play in this new landscape. Agents will benefit from proactively exploring alternative structures and preparing clients for the coming changes in premium, terms, and conditions.
Create Thorough Submissions. While rate pressure from carriers is unavoidable, quality accounts with solid history will likely be treated better than those with tough classes or significant loss history in hostile venues. Agents attempting to place challenging accounts, should prepare for submissions to be viewed under a microscope. Producing good results will require agents to be very thorough with submissions and willing to engage insureds in the process, especially in the middle market. Obtaining coverage can’t be viewed as a transaction. Now more than ever, agents and clients must collaborate to communicate the details of each account’s risk management program and loss experience.
Reach Out to Wholesale Partners. The time when agents could obtain MPL coverage without the expertise of wholesale brokers is very likely ending. The agents and clients that best weather the evolving market will be those that move quickly to collaborate with partners skilled at working in the E&S marketplace. CRC Group’s ability to leverage premium volume and capitalize on long-standing market relationships will become vital as agents discover that their ability to obtain coverage independently through direct markets is no longer enough to meet MPL client needs.
The current battle against COVID-19 has slowed MPL marketplace changes; however, significant market tightening is anticipated throughout the rest of 2020 and beyond. The hard market is being driven by increased claim severity and frequency, greater difficulty placing tough classes, widespread uncertainty around coronavirus claims, reduced capacity, and continuing evolution in the way healthcare is delivered. Moving forward, successfully finding solutions for clients will require agents to expand their reach by partnering with E&S market experts. Contact your local CRC Group producer to discuss how we can help overcome the challenges of a hardening MPL marketplace.
- Tom Levin is a CRC Vice President and Healthcare Broker and a member of the ExecPro Practice Advisory Committee. He also leads the Chicago Healthcare Practice.
- Conner Madey is an Associate Broker with CRC’s Chicago, Illinois office and an active member of the ExecPro Practice.
- Scott Scheiblin is an Associate Broker with CRC’s Denver, Colorado office and actively involved with CRC’s ExecPro Practice Group.
- Medical Professional Liability: A Market in Transition, Conning, March 2020. https://www.conning.com/about-us/insights/-/media/marketingsite/documents/viewpoints/2020/medical-professional-liability-a-market-in-transition.pdf
- Medical Professional Liability Market Firms in 2020, Medical Professional Liability Association, 2020. https://www.mplassociation.org/Web/Publications/Inside_Medical_Liability/Issues/2020/Q1/Articles/Medical_professional_liability_market_firms.aspx
- A Hardening Market Arrives in Time to Greet a Global Pandemic, Medical Professional Liability Association, 2020. https://www.mplassociation.org/Web/Publications/Inside_Medical_Liability/Issues/2020/Q2/Articles/A_Hardening_Market_Arrives_in_Time_to_Greet_a_Global_Pandemic.aspx
- The Reckoning is Here for the Medical Professional Liability Market: Here’s What Will Change, Risk & Insurance, December 21, 2018. https://riskandinsurance.com/the-reckoning-is-here-for-the-medical-professional-liability-market-heres-what-will-change/