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2010: Medical Professional Liability in a Changing Health Care Environment - The New Story Unfolds
The delivery of heath care is changing and this will impact the business of medical professional liability insurance. In this study, Conning analyzes the long-term impact of national heath care reform on an already stressed medical operating environment. Themes include increasing roles of nurse practitioners, physician reimbursements that reward lower-cost treatment options, and the mandated use of electronic medical records. The quality of care may decline under new reform and that could increase exposure for medical professional liability insurers. Conning analyzes the impact of these trends along with changes in state tort reform and the increasingly competitive environment. Within this landscape of change, there is a developing path for profitable growth as new efficient care facilities expand. The study includes recommendations for new risk management practices, pricing, product development, and growth.

1. Introduction

2. Executive Summary

3. A Notable Recovery That May Have Peaked?

  • A History of Cyclical Results
  • Where We Are Today: The Favorable Reserve Picture
  • Good Times/Bad Times: Have Growth and Profitability Peaked?
  • Conclusions

4. Favorable Claim Trends Are Not Sustainable

  • Drivers of Financial Instability for Medical Professional
  • Overview of Health Care Reform Mandates and Incentives
  • Establishing Proof of Negligence and Medical Malpractice
  • Conclusions

5. State Tort Reform: Signs of Erosion

  • Background: The Benefit of Past Tort Reform Measures
  • Evidence of Tort Reform Erosion on the State Level
  • Federally Funded Alternatives to Noneconomic Damage Caps
  • Some States Holding a Line on Tort Reform as Challenges Continue
  • Challenges to Expert Witness Practices
  • Conclusions

6. Reform Initiatives, Physician Shortages, and the New Delivery of Health Care

  • Introduction
  • Implementation Dates for Key Initiatives of National Health Care Plan
  • Do Changes in Health Care Shift Best Practices?
  • The Shortage of Health Care Professionals
  • The Role of Practitioners in the New Delivery of Care
  • Physician Shortages, Reform Mandates Drive a New Delivery of Health Care
  • The Patient-Centered Medical Home Is the One to Watch
  • Why the 32 Million More Insured Will Be More Difficult to Treat
  • Where Is the Increasing Risk for Medical Liability Insurers?
  • Conclusions

7. The Impact of Electronic Medical Records on Claims

  • Electronic Medical Records
  • Implementation Challenges That Could Increase Liability
  • The View That Working EMRs Could Reduce Liability Is Mixed
  • What the Government Is Doing to Ensure Success of EMRs
  • Conclusions

8. Market Outlook: The Rise of the Multilines

  • The Rise of the Multilines
  • Top-Tier Multiline Insurers Outperform Specialists
  • The New Focus of Multiline Leaders
  • Top Specialists Expand Number of States of Operation
  • The Drop in Physician-Owned Practices Continues
  • Organic Growth Outlook
  • Conclusions

9. New Strategies for Company Outperformance

  • Overview
  • Risk Managers Need to Change Focus
  • Closely Monitor Hospital Financials
  • Risks Will Grow in Underserved Markets
  • The Risk of the New 32 Million Insured Customer Base
  • The Pricing Challenge Ahead: Accounting for Practitioners
  • Leverage Organic Growth of More Efficient Health Care Facilities
  • Manage Investments to Mitigate the Risk of Inflation
  • Consider Investments in Technology That Coincide with New Available Data
  • Promote Patient Accountability to Shift Responsibility and Liability
  • Summary: The Opportunity for Medical Professional Insurers  

The most cursory analysis of medical professional liability insurance will tell you that the industry is headed for lower profits and slower top-line growth. This has been a highly cyclical line of business, and there is no reason to expect anything different in the future. The industry is moving through a relative peak in profitability, and most analysis suggests a return to price competition and a lower return on capital are approaching.

But with every underwriting cycle there is a story. The recent cycle was centered on doctor shortages, tort reform, better risk management, and aggressive claims defense. The story for the new cycle looks very different: national health care bringing electronic medical records, doctor reimbursements based on quality and efficiency of service, and 32 million previously uninsured. Given pronounced regional physician shortages, economic constraints, and an aging population, nurse practitioners increasingly will provide more care. The delivery of health care is poised for change. This will change the way medical professional liability insurance companies view and manage risk, defend claims, manage data, price policies, choose markets, and expand.

It is our view that a path exists for better-positioned insurers to outperform the market. Within the context of an expected cycle, tools exist for better-informed companies to drive their own future performance apart from industry results. While no company is immune from market forces, the degree to which they can insulate themselves is likely greater than they believe.

There are two forces that will drive this line of insurance back into unprofitable waters—competition and an increase in loss cost growth. Competition has begun already, with price-cutting, acquisitions, new entrants, and continued growth of self-insured vehicles. Loss cost growth has been slower to develop, but we believe the environment is right for a reversal in trends. In the main body of this report, we uncover, discuss, and stress test scenarios for loss growth. These scenarios center on new evidence of reversals in state tort reforms that have been shown to be the most significant benefit to improved profitability in the past decade. We also look at the potential impact of national health care reform, on how new mandates and standards of care may open the door for medical malpractice claims. In addition, the strain of the ongoing physician and nursing shortage, together with the addition of more than 30 million new insureds by 2014 under ObamaCare, will help drive new delivery systems for health care. Hospitals, doctors, and nurse practitioners are aligning to form more efficient Accountable Care Organizations and other cost-effective clinical care facilities. But the goals to reduce the costs of care under health care reform may not be achievable without increasing risk to the patient. When the delivery of health care changes, so does the liability. We analyze where and how such changes are occurring and what they mean for insurers.

Medical professional liability continues to be an insurance line of great importance to a general public that depends on the medical services it supports. Through the years, medical professional insurance has experienced periods of limited availability, driven by the inability of the product to generate adequate returns for the insurance providers. To this end, we look at drivers of underwriting cycles, how best to monitor their progress and inflection points, and the impact of a lower interest rate environment on investment income.

Multiline insurers, once a dominant force in medical professional liability, seem to be making a comeback. We examine the expanding role and opportunities for a new breed of multiline insurers in the context of historical changes in the marketplace. We also offer our forecast for growth and profits over the next few years, and examine different possibilities for how the future may unfold.

The world of health care is changing. Health care reform is promising the largest transitional phase to the delivery and practice of health care since the inception of managed care 30 years ago. As we transition through a new delivery of health care, insurance companies must revisit their focus, resources, and above all their thinking. They must synthesize how new technology and data collection/storage will have an impact on vital areas such as pricing, risk management, legal defense, and legal discovery. They must understand how new health care laws and mandates will change risk management priorities. They must be aware of new market opportunities as health care is provided in a growing variety of settings beyond traditional hospital and physician groups. In our last chapter, we offer some ideas on how insurers can outperform the market.


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