2020: Medical Professional Liability Insurance - Years of Plenty, Years of Famine
The medical professional liability market is a function of the health care market, and the latter has been undergoing seismic changes that are directly altering the MPL insurance landscape. In this study, we explore the four sectors of the MPL market as defined by the National Association of Insurance Commissioners—physicians, hospitals, other professionals, and other facilities. Based on publicly available financial information, trends in health care, and insights provided by industry professionals, we provide a prognosis of each sector that gives a view on their long-term attractiveness to MPL insurers. We also discuss questions MPL companies must ask (and answer) themselves in order to succeed in the new world of health care.
1. Introduction
2. Executive Summary
3. COVID-19 Special Section
4. MPL Market Update
² Financial Performance
² Verdicts Getting Larger
² Changes in Health Care
5. MPL: A Complex Market
² Data Limitations
² The Traditional Market
² The Other Side of the Coin
6. Physicians
² Background
² Performance
² Prognosis
7. Hospitals
² Background
² Performance
² Prognosis
8. Other Professionals
² Background
² Performance
² Prognosis
9. Other Facilities
² Background
² Performance
² Prognosis
10. What Next?
² What Is Our Mission?
² Play to Your Strengths
² Right-Size Your Organization
² Follow the Leader?
² Summary
Appendix
A. Sample List of Other Professionals
B. Sample List of Other Facilities
Introduction
After the previous hard market that ended in 2006, the MPL (medical professional liability) line had a seven-year stretch over which it generated results that were the envy of the property-casualty industry. During this period of prosperity, MPL operating ratios were 20 points better than the industry and policyholder surplus increased 85%.
But all that glittered was not gold. Since the peak of the hard market in 2006, written premiums for MPL have dropped almost 20%, while underlying claim severity continues an unrelenting march upward. Much of the industry’s profitability was due to a combination of investment income and loss reserve redundancies that had accumulated during the hard market. Meanwhile, underlying this profitability were deteriorating results that were only going to be corrected by a return to fair pricing.
The MPL market is marked by cyclicality. Periods of feast lead to periods of famine, which then take the market back to the beginning. However, previous soft cycles had the benefit of growing insurable health care exposures. Companies that kept their powder dry and survived the lean times could look forward to regaining lost premiums, and even growing, through a combination of higher prices and more MPL exposure units.
Until now …
The medical professional liability market is a function of the health care market, and the latter has been undergoing seismic changes that are directly altering the MPL market. The number of physicians that independently purchase MPL insurance is shrinking. Hospitals are morphing into larger health care systems that no longer purchase MPL the same way it was purchased in the past. Meanwhile, health care is more frequently being delivered in non-hospital settings by nonphysician providers that also need MPL coverage.
The changes in health care pose a dilemma for MPL insurers. These companies are generally well-capitalized, but many of them have seen their written premiums contract over the past decade. They are looking to use their capital effectively; as experts in health care, MPL seems the most logical starting point for these companies to pursue opportunities. However, while each area of the MPL industry presents business opportunities, each poses unique challenges, including the availability of data needed to make strategic decisions, intense competition in both the traditional and alternative insurance markets, and uncertainty as to the long-term appeal of each sector from an MPL perspective.
In this study, we explore the four sectors of the MPL market as defined by the National Association of Insurance Commissioners—physicians, hospitals, other professionals, and other facilities. Based on publicly available financial information, trends in health care, and insights provided by industry professionals, we provide a prognosis of each sector that gives a view on their long-term attractiveness to MPL insurers. We also discuss questions MPL companies must ask (and answer) themselves in order to succeed in the new world of health care.