Physicians and practice administrators need to prepare for the upcoming increase in Medical Malpractice Insurance premiums - if not immediately, certainly by the next renewal period.
The market cycles in the malpractice insurance market are defined by competition fueled by available money, low-cost capital, reasonable investment returns, and an extended period of reducing claims frequency. Physicians, hospitals, facilities, and other healthcare providers have enjoyed a little over a decade of reliable and stable yet decreasing malpractice insurance premiums. While the number of claims has been at unprecedented lows, the average payout per claim is increasing and it appears the number of claims is on the rise again. With healthcare consolidating and putting pressure on the carriers to retain the provisions in the insurance policies they already have, it has been a perfect storm of rate predictability and creative retention discounts.
We know that these market cycles can be as predictable as fluctuations in stock prices, but the medical malpractice insurance market is indeed cyclical. Some would argue that rate increases were long overdue and the carriers now have forced themselves to catch up by hiking rates in the next few .
It was in the middle of 2018 that we finally saw the bottom; companies began messaging brokers and agents…and agents heard conversations at industry meetings to start budgeting within your organization for slight increases in the cost of premiums.
This is a new, less flexible underwriting environment in which discounts will be taken away or applied with more scrutiny and some carriers will file for rate increases throughout the country or at least in many states.
The market is informed by the past! The carriers will probably not see the spikes that we saw in the 2002-2004 market. But there are signs that it is coming. We have noticed:
- an increasing frequency of claims
- rising rates due to higher loss ratios
- fewer discounts available
- tighter underwriting guidelines
- smaller, less stable insurance carriers collapsing or being acquired by larger entities.
Prepare your practice by understanding that premiums are closely tied to specialty and territory pricing.
When you're considering the premium cost of a new policy or renewal, be sure to contemplate average prices in your specialty and in your geographic area. We always tell people it's a much smaller world than you might imagine – there are only so many insurance companies that deal with agents and brokers. Some are direct -to-physician only, and not every carrier is licensed to do business in every state. In fact, it could be argued that the states are independently silo do, especially for conventional clinics and practices.
The idea of a medical malpractice broker going to the markets to shop your practice to the lowest and best bidder is disingenuous and inaccurate.
Brokers have relationships with the malpractice insurance carriers based on their history, focus, and commitment, and even so, most brokers are not appointed by every carrier so it is important to know the carriers in your state that cover your particular type of medical practice.
There is definitely value in talking with a broker for advice on how best to insure yourself and your practice, but make sure it is a sincere conversation about the available carriers.
I always advise other brokers to be willing to lose the business because there are some carriers that work exclusively direct to the physician, or they have a limited number of agents appointed to sell their products. A broker should take a consultative approach.
With the number of failed mergers and acquisitions between carriers, it is, of course, important to consider the financial condition of your carrier. Choose a financially solid, quality malpractice insurance carrier with plenty of capital. In the last three years, more than a few small, regional, unrated malpractice insurance carriers have failed, leaving physicians and groups in a difficult spot and in some cases with no coverage at all. While these companies were drying up, practice administrators and doctors were scrambling to find new coverage or replace tail coverage that was already purchased.
You don't need to pay a consultant or an attorney; you just need to ask a few questions and you would be surprised at how helpful the customer service representatives can be, and this applies to any carrier. Common questions to consider:
- What is the estimated total annual premium before underwriting?
- How long has the carrier been in this niche of providing medical malpractice insurance?
- What is the current price in my specialty before discounts?
The Doctors Insurance Agency primarily represents the doctor's company. However, there are different risks and there are different fits depending on where you’re practicing. At times we defer and recommend carriers we don’t contract with; other times, we can go to the market and get as many as five or six carriers to look at your application. It is entirely dependent on the type of practice and risk exposure.
Be realistic in that it is rare to find a medical professional liability policy for lower than $2000 per year, and when you've been in practice for a few years, expect to pay $4000 or higher. It is simply the cost of doing business: The average claim is $100,000, and every single time a claim is presented, carriers must budget for a payout and responsibly manage their reserves so that they are solvent and available to mount a rigorous defense.
Most medical malpractice insurance carriers are preparing for this change in the market. You should, too. According to one of the largest malpractice insurance companies in the nation, the combined loss ratio of all malpractice insurance carriers from 2006 through 2015 was below 100 percent. But in 2016, that same combined loss ratio rose above 100 percent and has continued to increase since.
When the insurance carriers are actually paying more in claims than they are collecting in premiums, of course the companies must raise rates. The increases range from 1% to 30% depending on the group, the attention given to patient safety programs and protocol, and the individual claims history of the physicians making up the group.
Whether you’re a doctor, a practice manager, or a hospital administrator, or maybe even a private equity or individual investor getting involved with a health tech company, this information can help you understand why you can expect higher premiums, more underwriting attention, careful scrutiny, and the issuance of policies that are sustainable. We have enjoyed over a decade of low prices and liberal underwriting policies, but there is still an abundance of capital and smart, sophisticated carriers.
Bottom line? Realistic expectations of justifiable premiums with annual increases commensurate with the group size should be expected.