According to just-released data from the 2019 Medical Liability Monitor Annual Rate Survey, for the first time since 2006, more than 25 percent of medical professional liability (MPL) premium rates increased, while for a second consecutive year, only 5 percent of rates decreased. These firming rates indicate a turn from the market’s decade-plus period of soft pricing, but is it headed for a real hard market — with annual rate increases averaging between 10 and 30 percent — similar to the last one, which started as a low simmer in 1998, heated up in 1999 and boiled from 2000 to 2006?
To answer this question, Annual Rate Survey guest editors Bill Burns and Alyssa Gittleman from the Insurance Research Department of the global investment management firm Conning compare current market conditions to those which preceded the last hard market. They note similarities between the two in the MPL industry’s operating ratio, return on equity, declining loss reserve margins, use of schedule credits and declining competition, but also observe significant differences in policyholder surplus, exposures and ceded reinsurance.
What do the Rates Say?
From 2007 to 2018, the results of the Annual Rate Survey had a certain familiarity — companies held most rates flat, decreased some rates and increased even fewer rates. In 2019, things look different — with more than 25 percent of the rates reported in the Survey increasing, while only 5 percent of rates decreased.
Based on the information gathered in this year’s Survey, the overall rate increase from 2018 to 2019 was approximately 0.8 percent. Drilling down, we see that rates in states without patient compensation funds (PCFs) increased by 1.1 percent, while rates in states with PCFs decreased by 1.1 percent (excluding one company’s exceptional rate decreases in two PCF states, that number would be an increase of 1.9 percent).
Several MPL insurers adopted rate increases for general surgery that were higher than those of the other specialties. A review of several rate filings suggests that the rate relativity for general surgery is increasing. It appears average costs for general surgery are increasing by more than average costs for the companies’ base class (hence the rising relativity). Consequently, rate increases for general surgery are greater than the average increases.
Excluding one company’s exceptional rate decreases in two PCF states, the average rate increase in the Midwest was 2 percent, 1.4 percent in the Northeast, 1.1 percent in the South and 0.3 percent in the West.
What Else Did We Learn from the Annual Rate Survey?
In addition to information on rates, respondents to the Survey provided color on other facets of the market, including underwriting, coverage, whether they are expanding or contracting the states in which they write business and their general view of the MPL market.
One conspicuous theme that jumped off the page came from responses to the question, “What do you view as the biggest threat to your market share?” The answers to this question indicate companies are concerned about a continued shrinkage of the exposure base of insurable physicians, brought about by hospitals acquiring physician practices and/or employing physicians as well as venture capital creating large physician groups that move to self-insurance.