Physicians and practice administrators need to prepare for the inevitable increase in medical malpractice insurance premiums at the next renewal.  Many practices have already seen an increase at their 2019 renewal.  The medical malpractice insurance market is changing, and premiums are going up. 

Physicians, hospitals, facilities, and other healthcare provider groups have enjoyed a little over a decade of steadily decreasing malpractice insurance premiums.  The medical malpractice insurance market is cyclical, and mid-way through 2018 it reached the bottom of the “soft market,” making 2019 the beginning of a new cycle.  This new “hard market” may not be as severe as in past decades, but the signs that it is coming are prominent: Increasing frequency of severe claims, rising rates due to higher loss ratios, fewer discounts available, tighter underwriting guidelines, and smaller less stable insurance carriers collapsing or being acquired.

Prepare your practice by following these tips:

• Work with a broker who has access to multiple medical malpractice insurance carriers.
  • Working with a broker with access to several companies will give you a full representation of the choices available.  Working directly with one company means you have one choice and no way to compare.  A broker will submit your applications to all or most carriers and get quotes back to compare side-by-side.  Then you or your group can make an educated decision based on the broker’s knowledge and experience with each company.

• Brokers have relationships with the malpractice insurance carrier’s underwriters, which means they can negotiate on your behalf using leverage to get you the best coverage at the best rate.

• A broker will take a consultative approach, learn the needs of the practice, and work alongside the decision makers to choose coverage that is right for the group.

• Choose a financially solid, quality malpractice insurance carrier with plenty of capital.
  • In the last 3 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 bare.  While these companies were drying up, practice administrators and doctors were scrambling to find new coverage or replace tail coverage that was already purchased.

• Don’t wait!  Do some research on your current insurance carrier.  If they are not A-rated, with a sizable market share and a solid historical record it’s worth asking some questions and maybe even shopping around.  Better yet, speak with a broker or healthcare practice consultant about the financial stability of the carriers available in your area and specialty. 

• Ask key questions about the company that covers your practice:
  • What is the total annual premium?
  • How much money is in reserve to pay claims – current and future claims?
  • What is the current loss ratio?  Has it changed in the last 3 – 5 years?
  • How much money is in surplus?
  • How long has the company been in the malpractice insurance market?
  • What are the historical rate trends with the company?
  • What is the company’s long-term strategy?
  • How do all of these factors compare to the other carriers available?

• Again, keep in mind that rather than doing this research yourself you can speak with a broker or healthcare practice consultant that should be able to provide you with this information and more for any carriers you might want to consider.

• Budget for a premium increase at renewal time.
  • At budget time, include an increase of 5% — 20% in your practice’s medical malpractice insurance expense category.

• Most medical malpractice insurance carriers are preparing for the 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.  That means carriers are paying out more than they’re collecting in premiums, which is eroding their surplus and reserves.  There will be a reaction to this trend in the form of higher premiums.  Some carriers may hold out for another year or so, but the increases are on the horizon.

• In 2019 we have already seen most of the larger carriers push rates up through fewer discounts and filing higher rates in some states.  The increases range from 1% to 30% depending on the state, specialty, and loss history.

• As indicated above don’t forget that cost increases to customers may not take the form of direct premium increases, at least not at first, so make sure that you are asking about and paying attention to things like dropped or reduced discounts, higher deductibles, or reduced risk management credits.

• Manage the group’s expectations.
  • Whether you’re a doctor, a practice manager, or a hospital administrator, if you’re one of the decision makers prepare others in the group for the changes ahead.  We’ve all enjoyed a decade or more of low rates and few claims.  Since 2009, most practices have reported that medical malpractice insurance cost is not one of their main concerns or highest expenses.  About 15 – 20 years ago malpractice insurance was one of the largest expenses involved in practicing medicine, but as rates consistently decreased over the last 10 – 12 years, most practices haven’t even thought about it as a hot button issue.  That is changing.  Help your group understand what’s changing, why it’s changing, and what to expect in the next few years.  And if you have questions yourself find a broker or consultant that you trust that can answer your questions and that is willing to answer those of your colleagues, coworkers, or bosses as well.

What is pushing the change?

The main reason for the change in the medical malpractice insurance market is the increase in the number of large payouts and the severity of those payouts.  Additionally, there has been a shift from an abundance of independent solo or small physician groups to larger groups and hospital employment.  In order to attract new clients and gain market share in this more competitive environment malpractice insurance carriers have been consistently reducing rates.  While they’ve remained profitable for many years, the profits have been minimal for the last 3 years, and many carriers are beginning to see reserves eroding.  If combined loss ratios continue above 100 percent, an adjustment will be necessary to keep the carriers solvent.  As we’ve mentioned above, this has already started taking place as of late 2019.

The cyclical nature of the medical malpractice insurance market means that there will always be ups and downs, or “soft” and “hard” market trends.  Insurance professionals agree that the recent soft market cycle lasted longer than expected, and longer than has been typical historically and physicians, groups, and hospitals have all benefitted from lower rates and less risk for over a decade now.  But as with any cyclical business market, things are never static but always changing.  Physicians and administrators need to be ready for these changes as they plan for this year’s medical malpractice insurance renewal.

The brokers and consultants that at The Keane Insurance Group can help physicians and administrators navigate the changing environment.  Connect with one of our experts by completing our simple online quote request.  We work with over 50 insurance carriers and have solutions for every specialty in every state.

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