What do Reserve Developments have to do with my Medical Malpractice Rates?

One of the first questions you should ask to your medical malpractice Insurance Agent is: How do the Reserves of the Carrier compare to Premiums Collected.  Insurance Companies should collect more in premium than the actual cost of the risk.

The excess of premium collected over the expenses paid out goes into the reserve funds.  Lower than budgeted losses, due to lower than expected numbers of claims allows medical malpractice companies to release money that had been budgeted for paying attorneys fees and fines and settlements and discovery, back to the company. These monies are held until it is proven that in that loss year, they are no longer needed,  the   'reserve' can go back to the general accounting fund.  

Monies Released back to the Medical Malpractice Insurance Carrier:

The General Fund then factors in to the overall profitability of the Insurance Carrier.  When prior year losses are released back to the company, there is less pressure on the rates. This simple, brief explanation of the effect of Reserves on Premium serves to describe the climate of the medical malpractice industry over the last eight years.

Reserves released continue to trend favorably:

Reserves released in 2011 equaled a full 20 % of premiums collected.  This means, the product is generally under priced...significantly!  
Lower than budgeted number of claims continues, which means that the carriers can continue to under price.  In this competitive or 'soft' market, the Insurance Companies Price Medical Malpractice Premiums as low as they possibly can.  There is a general goal to hold on to our clients, to retain premiums and policyholders with discounts and premium dividends.  

The Industry Reporting Expert, Crittenden says, rates will remain low!

Favorable Losses continue.  Crittenden Medical Malpractice Insurance  Newsletter, which reports on Insurance Industry Trends, specifically, medical malpractice insurance and healthcare liability insurance, thoroughly examines the nation's top Malpractice Insurance Carriers release numbers continue to follow 2011's impressive numbers (recall that release indicates money left over from prior year calculations, essentially a savings account, which becomes available due to lessened expenses).

The reason this very specific, science of insurance numbers is important is because we can project within reason, supported by the science, the premiums will remain low, in California and throughout the country.  Eventually, the very gradual uptick of cost of claims will accrue to the bottom line of every insurance company, pushing the release percentage down.  For now, in the near term, Crittenden tells us that fom ProAssurance, Arch, ACE, CNA, Allied World and The Doctors Company, reserve favorable development is solid.  Medical Protective, AIG, The Doctors Company all report favorable Loss Development this year, single digit decreases from 2011.

Long Term Facility Care Losses Rise

Perhaps one harbinger of things to come is that Long Term Care and Midlevel Provider Loss Experiences are beginning to increase.  CNA is one of the largest markets in this segment, they have experienced close to 75% decrease in development this year over last. Consequently, they are going to increase premiums across all healthcare segments after concluding that they are approximately 20 % Under priced due to increased losses and reduced reserve releases.  

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