According to a new annual rate survey by Medical Liability Monitor, base-rate premiums for medical professional liability insurance (MPLI) continued their downward trend for a sixth consecutive year. The current soft market condition is longer and deeper than any previous soft market, it found. The survey said it will likely be a few more years before the market hardens.
This trend has been taking place while the MPLI industry posted one of its best financial years in 2010, challenging the traditional definition of a soft market, according to the survey.
Insurance ratings agency A.M. Best also released a report on MPLI this week. It found MPLI writers showed strong operating earnings amid flat claim frequency rates and only modest increases in average claim severity. It said MPLI market continued to outperform the total U.S. property/casualty industry composite in key financial indicators.
Majority of Rates Remained Flat
“The MPLI market has steadily continued to grow softer, despite its continued profitability,” said Michael Matray, editor of the Medical Liability Monitor. “It’s fairly clear that the effects of the industry’s soft market have been disguised by companies releasing past reserves, artificially inflating the industry’s profits. Truth be told, this soft market has lasted twice as long and been twice as deep as any previous soft market.”
This year’s rate survey depicts another year where the majority of rates remained flat (55 percent of all rates did not change).
Where rates did move downward, a resounding majority (90 percent) decreased between 0.1 percent and 9.9 percent; 7 percent of downward rate changes fell in between 10 and 19.9 percent, and a small number of rates decreased by 20-or-more percent. So while overall rates did decrease, at face value, their fall was not as precipitous as in year’s past.
Using Schedule Credit
One trend is that MPL insurers’ use of schedule credits may have masked the full decline in MPLI rates. Because credits work to lower the actual charged rates beyond the manual rates filed with the states, a reported 0.2-percent overall average reduction in manual rates could, in fact, be a 2- to 4-percent actual reduction when schedule credits are figured into the mix, closer to the overall average decline seen in 2008 and 2009 when credits were not being offered quite as freely.
In this year’s survey, 11-percent of surveyed companies introduced new credits during the past year; this is in addition to the nearly 20 percent of companies that added new credits the previous year. This suggests this particular strategy for attracting insureds may be coming to a natural end, as there are only so many classes of credits possible before you begin to run out of them.
More Independent Physicians Join Healthcare Groups
Another trend found this year is a shared concern over the migration of independent physicians toward becoming employees of hospitals or large healthcare groups.
More than half of all respondents said this consolidation trend, where formerly independent physicians join larger healthcare delivery systems and receive MPL insurance through their employer, is the most worrisome threat to their market share. This trend will likely exacerbate as the Patient Protection & Affordable Care Act is implemented and the formation of accountable care organizations begins to flourish.
Looking ahead, MPLI profitability will likely come under some pressure as past reserves eventually run their course. But like the U.S. job market and economy in general, it will likely take a few years before the MPL market hardens, the survey said.
Fortunately, the industry is starting from a place of strength in terms of expertise and finances as it rouses itself to address these challenges, according to Medical Liability Monitor.
Medical Liability Monitor is a publication that reports exclusively on medical professional liability insurance. Its annual survey reports rates from over 40 companies that represent 75 percent of the physician’s malpractice insurance market.
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