For years, medical professional liability (Med-Mal) insurance has been the largest insurance expense — and one of the largest overall expenses — incurred by physician groups.
For the past several years, the MedMal Insurance market had been trending toward a hard cycle, characterized by an increase in rates and a decrease in options available to medical groups. During the pandemic, there was some uncertainty as to whether that trend would accelerate, but now that we are largely outside the statute of limitations for COVID-related claims, we note that there were generally not a lot of claims that held physicians in medical groups liable over this otherwise-tumultuous period.
Nevertheless, the market continues to harden due to global factors including claims severity, the specter of nuclear verdicts and social inflation, as well as regional factors, such as a 2022 court ruling on venue-shopping in Pennsylvania.
As a result, “the proportions of premiums that increased year-to-year reached highs not seen since the 2000s,” according to an AMA Benchmark Survey. The bottom line: While there may not be a hard market yet across the entire U.S., there appears to be a hard market in many states.
The Harmful Threat of Medical Malpractice Suits
Almost 1 in 3 physicians experience a medical malpractice claim over the course of their careers, according to the AMA report. While nearly three-quarters of claims result in no payment to the plaintiff, they still take up a great deal of time and create a great deal of stress.
On average, physicians spend 11% of their career with an unresolved, open malpractice claim, according a study by the RAND Corporation based on data provided by The Doctors Company, the nation's largest physician-owned medical malpractice insurer.
In addition to the time, expense and stress of malpractice claims, the related insurance costs are among the medical practice's largest expenses.
The MedMal Marketplace
Increases in claim severity, defense costs and operating expenses have led to insurers experiencing adverse underwriting results and the advent of a hard cycle in the industry. Some carriers have left the market or withdrawn capacity, while others have increased base rates.
There are several reasons for this trend, foremost escalating levels of loss severity. As noted in the accompanying charts from MedPro Group, while the number of claims has largely been trending downward, the level of severity has been rising steadily. (Note: the decrease in frequency in 2020 and 2021 are likely artificially low due to the closure of courts, which caused a slowdown in case adjudication during the pandemic.)
SOURCE: MedPro Group
The greatest impact on Med-Mal Insurance has come from a steady climb in “nuclear” verdicts, or court awards exceeding $10 million. Examples include a $111 million verdict in Minnesota, a $97 million award in Iowa, a $75 million verdict in Georgia and a $23.9 million verdict in a birth-injury case in Washington.
Another notable element in this trend is social inflation, which refers to the increase in claim-related costs beyond the overall inflation rate. Up to 11% of all medical malpractice losses incurred by physician insurers stems from social inflation, for a net impact of up to $3.5 billion, according to a recent study by Moore Actuarial Consulting on behalf of TDC.
In the Pennsylvania venue-shopping case, the Supreme Court ruling set a notable precedent about MedMal cases: The court ruled that plaintiffs may sue in any Pennsylvania county in which care occurred, where a defendant could be served, or where any transaction or occurrence giving rise to the suit took place.
The ruling could affect the level of malpractice awards, as plaintiffs may choose to file their lawsuits in counties that are perceived to be plaintiff-friendly. This could dramatically impact the Med-Mal Insurance markets and result in a rise in malpractice insurance premiums.
Overall, rates will continue to rise for most policyholders, according to Alera Group’s 2023 Property and Casualty Market Outlook, a comprehensive examination of the factors behind market conditions and forecast of the P&C landscape.
“While increases for primary layers will be in the 5%-15% for most classes, expect 20%-50% for tougher classes and those located in more litigious regions,” the report notes. “Loss severity patterns will drive excess layer pricing up 15%-20%.”
Hardening at a Decelerating Pace
Despite this pessimistic news, the market appears to be in an orderly, hardening cycle, as opposed to a runaway one. Many carriers are looking for opportunities, and the resulting competition is decelerating the trend toward a true hard market.
For the savvy practice and a resourceful broker, there continue to be effective ways to mitigate the impact of increasing premiums.
What You Can Do
Here are five ways to mitigate the effects of the hard market for MedMal Insurance.
- Make sure you’re with the right carrier. Each insurance company has different underwriting rules, and rates can vary dramatically based on medical specialty and county of practice. Work with an agent or broker who has access to all carriers in the marketplace to ensure a comprehensive review of available coverage.
- Ensure all applicable discounts are in effect. Discounts are often available based on factors such as membership in an accountable care organization (ACO), specialty association, use of electronic medical records (EMRs) and other qualifications. A qualified broker will be able to provide a policy analysis to make sure that any discounts for which you’re eligible are being applied.
- Complete risk management activities. Carriers often require risk management courses or assessments to qualify for discounts. These are helpful in reducing risk, as well as in earning CME credits. Don’t hesitate to ask your agent or broker if you need assistance in preparing for and completing the activities.
- Optimize coverage for your situation. No two practices are exactly alike, so no two insurance programs should be identical. Work with an agent or broker who specializes in healthcare entities to make sure your policy is custom-designed for your practice. Consider whether it should have:
- Shared or separate limits for your corporation and allied providers;
- Individual or full-time equivalency (FTE) rating;
- Part-time coverage or specialty changes.
5. Understand the true cost of insurance. While seeing the bigger picture alone won’t save you money, understanding the complexities of your insurance program will enable you to make informed decisions. For example, calculating pure premium based on your organization’s loss history and comparing that to the premium you are paying, strategically approaching tail coverage using a combination of occurrence and claims-made policy forms, being able to identify gaps in coverage — this is what empowers you to get the best possible coverage at the lowest cost.
For a more in-depth look at strategies for navigating P&C market conditions, read Alera Group’s 2023 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current P&C market, along with analysis categorized by industry and lines of coverage.
With more than 130 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs. To contact an Alera Group agent or broker, click on the link below.
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About the Author
Jason P. Shah, M.D.
Managing Partner, Alera Group Healthcare Liability (HCL) Team
Jason P. Shah, M.D., is a managing partner and Partner Advisory Board member of Alera Group. He has a diverse background in medicine, information technology, and business development. Since co-founding Flagship Healthcare in 2007 (now Alera Group’s Healthcare Liability Practice), Jason has utilized his physician background and insurance expertise to develop insurance programs and consult on risk matters for healthcare practices around the country. Jason studied Computer Engineering at the University of Illinois at Chicago and earned his MD from the UIC College of Medicine.