Conning & Co. Study Predicts Tough Future for Medical Malpractice Industry

May 21, 2001

According to a Conning & Company study, “Medical Malpractice Insurance: A Prescription for Chaos,” decreases in investment income, coupled with increases in the severity of lawsuits and the rising costs of reinsurance, are very likely to make medical malpractice a difficult market for the foreseeable future.

According to the Conning study, in 1999 the medical malpractice line of insurance ended a twelve-year streak of outperforming the p/c industry as a whole. This coincided with insurer reserve deficiencies growing to $1.7 billion, leaving insurers little margin for any negative surprises in 2001.

Conning notes that the difficult state of the medical malpractice industry is due in part to disproportionate claims against nursing homes although hospitals also contributed to the medical malpractice “black hole.” The loss ratio of the nursing home line was approximately 300% in 1999, an extreme number that accounted for much of the entire medical malpractice industry’s disappointing combined ratio of 129.5%. Excluding nursing homes, the medical malpractice line would have produced a combined ratio of 108% – still a problem, but roughly in line with the combined ratio of 107.7% for combined all-lines.

Although nursing homes represented only 10% of the premium in the late 1990’s, they will likely contribute 30% or more to the eventual accident-year losses. Conning believes that loss position will continue to be inadequate in this sector until the industry makes the necessary adjustments to loss reserves.

The Conning study also focuses on the forces that will most likely define the changing medical malpractice market (in order of immediacy): reinsurance affordability, government regulation, and the increased use of Internet by consumers, providers and insurers.

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