Navigating the Medical Malpractice Insurance Cycle

A recent Netflix documentary illustrates the rising trend of high-profile medical malpractice cases with significant monetary awards, underscoring the need for physicians and others in the medical industry to protect themselves with Medical Malpractice Liability Insurance.  

“Take Care of Maya” chronicles an emotional story that ended with charges of medical negligence, among others, against Johns Hopkins All Children’s Hospital in St. Petersburg, Florida.  

Initially, a jury awarded Maya’s family $261 million in damages, an amount a judge later reduced to $213 million.  

The case is currently pending appeal.  

Tracking Medical Malpractice Insurance since 2000 

In the early 2000s, insurers faced substantial medical malpractice losses, prompting a surge in premiums, especially for specialists such as OBGYNs, and causing financial strain on healthcare providers in general. In response, many states implemented tort reform measures to mitigate the crisis and reduce insurance costs.  

From 2006 to 2016, the marketplace for Medical Malpractice Insurance thrived, with competition among new carriers pushing pricing down. As the market softened, however, state supreme courts overturned some of the tort reforms. 

Around 2017, industry observers noticed a concerning trend: The average settlement for medical malpractice claims was escalating beyond typical inflationary metrics. This phenomenon, dubbed “social inflation,” highlights the disparity between economic inflation and actual severity costs.  

“In 2023, there were multiple jury awards surpassing $25 million, including a $183 million verdict in Pennsylvania.” reported the Medical Professional Liability Association. 

This surge in “nuclear verdicts” has attracted third-party litigation financing, further complicating the claims landscape by turning it into a profit-making endeavor. Additionally, this trend has seen foreign entities exploit the U.S. legal system for their own gain.   

With the onset of the COVID-19 pandemic in March 2020, court proceedings were prolonged beyond the norm, skewing the claims history for about two years. Consequently, the actual incurred losses appeared healthier due to extended case lifecycles in the courts.  

By 2022, in most parts of the country, carrier combined ratios exceeded 100%, as modest premium increases over recent years failed to offset actual claims activity. The loss ratio unprofitability was at least partly driven by nuclear verdicts brought forth by third-party litigants.  

In both 2022 and 2023, the number awards of $10 million or more in medical malpractice lawsuits was slightly above prepandemic levels, while the number of awards of $25 million or more soared to all-time highs. 

Ultimately, the entire medical profession has had to shoulder these increased costs, creating a shared burden that inevitably trickles down to patients.  

In response to these challenges, there has been a renewed focus on tort reform and legislative measures. The American Medical Association’s (AMA’s) “Medical Liability Reform NOW! 2024” initiative aims to reform medical liability at both the federal and state levels, with the goal of improving the legal climate and enhancing overall patient care.  

What’s ahead for Medical Malpractice Insurance 

Here’s what Alera Group reported in our 2024 Property and Casualty Market Outlook about factors influencing the market for Medical Malpractice Insurance: 

“Capacity and coverages will be widely available, but terms will be influenced by the relevant judicial environment, professional classifications and loss experience.” 

• “Pricing is forecast to increase in the range of 1%-10%. Average rates are expected to increase from 1%-8% for physicians and surgeons, and 7%-15% for facilities. Hospitals will be encouraged to increase their self-insured retentions to prevent even greater premium increases for their facilities. Although claim frequency has recently declined, the resulting dollar savings will be offset by a dramatic increase in the number and severity of jury awards in a growing number of states. 
• “Physicians and physician groups with good loss experience and strong risk management practices will have little difficulty finding markets for primary coverage. They will find it more challenging to secure excess limits because of an ever-increasing number and cost of verdicts above $10 million. Facilities, however, will be able to fill their excess limits requirements up to $100 million due to the market’s increased willingness to provide capacity layers above $50 million. Difficult classes to secure protection in the standard markets continue to include emergency physicians, OBGYNs, neuro and trauma surgeons, nursing homes and abortion-related practices. 
• “Underwriting scrutiny remains rigorous. Applicants with a history of sexual abuse claims will either be declined or required to accept lower sublimits for this coverage. Most underwriters will decline physicians and physician groups with a physician-to-nurse practitioner/physician-assistant ratio greater than 1 physician to more than 3 NPs and PAs due to fears about adequate supervision. 
• “Insurers are concerned about the increasing number of states with undesirable litigious environments. States considered difficult used to be limited to California, Florida, Illinois, New Jersey and New York. The list keeps expanding and now includes Alabama, Idaho, Iowa, Nebraska, Minnesota and Utah.” 

Since the Market Outlook’s publication, there have been notable developments in excess and reinsurance markets, indicating tightening at the highest layers. Consequently, medical facilities may encounter challenges in securing excess limits above $50 million. Moreover, Georgia has emerged as another state on the expanding list of undesirable litigious environments, joining California, Florida, Illinois, New York and Pennsylvania.  

Strategies for challenged accounts 

Navigating Medical Malpractice Insurance coverage for physicians with severe or frequent claims or those in difficult classes requires strategy. Working with your broker to engage proactively with underwriters is crucial.  

In current market conditions, strengthening relationships with your incumbent carrier can be more advantageous than shopping around at renewal. Prioritize stability over small savings; maintaining coverage with your incumbent carrier ensures continuity in managing open claims, and your historical pricing could prove beneficial in negotiations.  

Consider offering a commitment not to market your account at the next renewal, as this could strengthen your position with your incumbent carrier. For practices with unfavorable loss histories, highlighting remediation efforts demonstrates proactive risk management. By illustrating the steps taken to mitigate future losses, healthcare practices can instill confidence in underwriters.  

What you can do 

In navigating the complexities of Medical Malpractice Insurance, making informed decisions can be critical for healthcare practices. Here’s how you can ensure that you’re partnering with the right insurance broker:   

1. Work with a broker with a healthcare liability niche. Search for a brokerage that specializes in the insurance, legal and medical needs of physicians. Find a collaborative team of physicians, attorneys and insurance professionals who provide the unique ability to understand, identify and address the liability risks and exposures facing healthcare practices.  
2. Understand the differences in carrier underwriting. Medical Malpractice Insurance varies from carrier to carrier, as does the underwriting processes. To secure the most suitable coverage for your practice, it’s essential to work with a broker who comprehensively understands these differences.  
3. Seek brokers dedicated to problem solving. Look for brokers committed to solving your insurance challenges and bending the cost curve over time. By focusing on insurance program sustainability and lowering the overall cost of risk, the right broker becomes a long-term partner in securing your practice’s financial health. 
4. Prioritize scale. Partner with a brokerage that has established relationships with and access to leading Medical Malpractice Insurance carriers. A sophisticated broker will not only handle your Medical Malpractice Insurance program but also offer solutions for emerging needs, ensuring comprehensive coverage as your practice evolves.   

Understanding the cyclical nature of Medical Malpractice Insurance, creating a strategic renewal plan and partnering with an experienced broker can help physicians better safeguard their practices against allegations of medical malpractice with comprehensive coverage.  

CONTACT AN ALERA GROUP MEDMAL SPECIALIST   

About the author 

Jason P. Shah, M.D. 
Managing Partner
Alera Group Healthcare Liability (HCL) Team 

As leader of Alera Group’s Healthcare Liability team, Jason P. Shah, M.D., has been integral to the practice’s emergence as a national force in serving the medical industry, with more than 5,000 healthcare clients across the country. Thanks to his background in medicine, information technology and business development, he has an unsurpassed ability to develop insurance and risk management programs for physician groups, hospitals, health systems and other healthcare practices. A lifelong Chicago resident, Jason received his bachelor’s degree from the University of Illinois at Chicago, and later earned his M.D. from the UIC College of Medicine.  

Contact information: 

• jason.shah@aleragroup.com 
• Connect with Jason on LinkedIn