Are insurance brokers experiencing “market fatigue” in the medical professional liability line of insurance right now?
Could be, according to Daniel Nash, senior vice president of Field Operations and Business Development for Ironshore.
Even though pricing in the market is soft, there currently is an excessive number of insurance carriers in the space.
“There is so much capacity, it is affecting the market. That’s what keeping the prices, to me, artificially depressed,” Nash said. With the high numbers of carriers in this space, and more coming in everyday, Nash surmised that it’s very likely brokers could be experiencing what he termed “market fatigue.”
“Competition is always good, always good for customers to keep the prices as low as possible, but at some point some of these companies, and I won’t name any of those specific companies, but their combined ratios are in excess of 100 percent,” Nash said in an interview with Insurance Journal. “You can’t make money over a 100 percent unless the investment returns are there and they’re not there today.”
It’s challenging to find the right pricing for the right risk, Nash said. “You have to be more thoughtful about your business, what you’re going to do. You want to be thoughtful about getting more business, but you also have a profitability concern you have to maintain and also you want to be there to pay the clients.”
Brokers need to be thoughtful too, he said. Because there are so many markets to choose from and the customer typically doesn’t have the skill set to determine which of the 60-plus markets they should consider.
“The broker has to be more thoughtful about which markets they bring to bear for that customer — do they like that particular risk, are they going to pay claims? What’s their financial strength for that company, and what has their history been in that particular space?” he said.
In figuring out which markets to bring forward to their clients brokers also need to keep in mind what kind of relationship the customer wants. “Some customers are partnership customers; they want to work with one or two carriers. … Other customers are price shoppers and will be out in the market every year,” Nash said.
Not only do brokers need to be able to assess the markets and the appropriateness for a given customer, but they also need to be able to understand the client’s exposures and clearly articulate that risk to the underwriters — what the customer is and what they like.
“The broker has to know their customer, explain what the real exposure is so we can understand and give them the best terms and conditions available, so everyone is happy at the end of the day,” Nash said.
A Soft, Profitable Market
The medical professional liability (MPL) line of insurance is a soft, but profitable market, and has been so for years. So does that make the soft market in MPL the “new normal?”
That was the question raised during a panel discussion on market conditions at the PLUS Medical Professional Liability Symposium in Chicago in April.
The loss ratio in the medical professional liability line hasn’t been above 100 for a number of years, according to Paul McKeon, chief underwriting officer and executive vice president, Transatlantic Holdings.
There’s been “unbelievable profitability for this line of business,” said McKeon, the panel’s moderator. And the picture is “still rosy,” he added.
While the market is expected to continue in a profitable vein for a number of reasons, it’s not without its challenges, according to A.M. Best. In a special report released in early May, the ratings agency confirmed that the line was profitable in 2015 but reported the industry’s net income fell by 36.6 last year, to around $1.1 billion.
However, despite that deterioration medical professional liability is expected to continue to be profitable with strong capitalization at least in the midterm, A.M. Best said in its report, “Strong But Declining Profitability in 2015 for Medical Professional Liability Sector.”
The report noted some of the pressures on the market: changes in healthcare delivery; tort reform; new medicines and surgical procedures; solo practicing physicians moving to group or hospital employment; cyber security; an influx of insureds into the healthcare system; strong competitive market pressure and low interest rates.
Still, it is a time of stable pricing and profitability, according to Mathew Carletti, managing director at the investment bank, JMP Securities LLP. A participant in the PLUS Medical PL panel discussion, Carletti acknowledged that “a lot of people define [a soft market] as rates are going down. In that case, it may be a soft market.” But he added that solid underwriting, better data and better systems have helped create “a normal where profitability cycles are less severe.”
As to whether it’s a soft market and, if so, is it the new normal, “you’ve got to ask the question – what does the soft market mean?” said Kevin Gabhart, senior managing director at Beecher Carlson, another panel participant. “From a brokerage perspective, it’s an overabundance of capacity and competitive rates, sometimes lower than what the actuary is recommending to our clients. …. We’re in an environment right now where we’re seeing that.”
His clients, from the small physician groups to large healthcare systems, say “they can buy in the commercial marketplace cheaper than self-insuring. Is this the new normal? … I can tell you our clients are expecting [it to be], yes,” Gabhart said.
However, Ironshore’s Nash, who also participated in the market conditions panel, said there may be changes coming in the next few years. In addition to the evolving landscape of healthcare delivery, the line may also see pressures resulting from the outcome of the presidential election and possible regulatory changes.
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