Reserve Development impacts medical malpractice insurance pricing for medical malpractice insurance carriers.
Reserves are the amounts held by insurance companies to pay for future claims. Reserving properly from company investments and premium contributions is one of the essential tasks of the insurance carrier. If they measure, analyze and allocate the right amounts to settle and manage claims appropriately, the reserves should be strong, covering just what is needed year over year. In other words, the companies should not have to take down and release reserves.
Reduced claims results in less money paid and more reserves available:
However, when a few years pile up, added together where the number of claims filed (even after there are hints, outward signs that a claim is developing) then the reserves can be released back to the carrier.
When times are good for malpractice insurance carriers, the rates become competitive (as they have been for the last seven – to nine years).
Ideally, you should not have to take down reserves because the amount set aside should roughly equal the amount paid,..and, accurately guessing the amount to be expensed and settled three to even ten years in the future can be impossible.
however when there are fewer claims filed, then anticipated, these reserves can build up quickly.
Artificially supporting premiums through savings from fewer claims filed:
This dynamic of taking down reserves and releasing them back into the general fund to help pay for claims and add to the company revenue can offset or delay needed premium increases. The key words here are: needed premium increases. it is well documented that claims amounts have been on the rise for years, ‘severity increases of 5 % or more have been reported consistently.
Short term increase in reserves, will continue to push rates lower, this is and has been the defining time for medical malpractice insurance carriers.
There was a time when the premiums were held down by gains in the stock market, giving the illusion (during the mid-nineties, that premiums could remain ‘cut throat’ forever.
back in the mid to early nineties, the premiums were competitive year in and year out for different reasons:
Insurance Companies (medical malpractice carriers) would price the product to run at a loss, only to make up the premiums with gains in the stock market.
Now, there are other carriers that see an opportunity to grow while more patients enter the healthcare field. The companies are bringing and entrepreneur’s eye toward this business; looking for opportunities to write some of these providers who will be needed to serve the new patient populations.
There are other Big- recognizable commercial insurers who will bring more ‘capacity’ into the market, competing for medical groups, foundations and alliances of hospitals, universities and medical groups. Consolidation of the current medical malpractice insurance carriers creating bigger, well-capitalized companies as well as the influx of these large carriers will cause the continuation of the competitive, ‘soft’ market for medical malpractice insurance premiums.
When large commercial, well capitalized carries enter the market, cash strapped, smaller carriers struggle to hold premiums and they reach into reserves. The medical malpractice insurance industry continues to show a downward trend in frequency of claims reported; which will surely push the soft market into another year or two.
These larger commercial carriers join specialty providers such as Lloyd’s, Catlin, Hiscox and AIG. They are targeting non hospital medical providers, surgical centers, outpatient medical centers and rehabilitation facilities; blood banks and large physician groups.
Managed Care, Accountable Care, Alliance Groups and large integrated medical groups are all targets for these larger commercial carriers.
There seems to be a shared feeling among the medical malpractice insurance carriers that growth and profitability in this business lies with physician groups and allied health care providers.
Choosing low limits and pursuing business in regions that have a good track record in and healthy tort reform guides some underwriting decisions.
Ambulatory Centers, Imaging Centers, Oncology and Elder Care are growth areas attracting the attention of specialty insurance companies and their experienced underwriters familiar with this unique product niche.
Hang on to the current policyholders and do a little more for them:
Many medical malpractice insurance carriers are expanding into Physician’s Billing, Administrative, Regulatory Fines, Medical Board Actions, Directors and Officers and Employment Practices Liability due to the challenge of retaining existing and attracting new business. With the expectation of new patients crowding into the field, hospitals are gearing up for more; some of the local, community hospitals are evolving, changing their business model into ambulatory surgery centers or clinics to be prepared to accommodate a change in the patient population.
There are some reports by industry observers that say: The only area which will allow for any premium growth for many malpractice insurance carriers are the troubled accounts, which have had unusual claims activity, or administrative hearings, disciplines and investigations.