After years of anemic premium growth, pricing trends were finally going the medical professional liability (MPL) industry’s way in 2021. Notably, this was only the second time since 2006 that growth in the MPL market exceeded that of the total property/casualty (P/C) industry.
Had premium growth finally turned the corner, fueling tailwinds for the industry to reverse long-standing trends? Unfortunately not.
Premium growth slowed in 2022, setting the stage for modest premium growth of around 3% in 2023.
In this analysis, we’ll explore the factors contributing to the state of MPL market premium growth—or lack thereof—and offer some concrete take-aways for your consideration.
Premium Growth Background
From 2015 to 2020, MPL industry premium growth chronically lagged that of the total P/C industry. During this five-year period, direct premiums written (DPW) for the P/C industry increased almost 23%, while premiums for the MPL industry grew less than 7%.
This minimal growth in the MPL industry was brought on by a combination of factors including a soft pricing environment, shrinkage in the number of independent physicians that purchase MPL insurance, and a movement toward alternative insurance mechanisms such as captives.
2021—A Very Good Year
Premium growth, especially strong in the first half of 2021, tailed off a bit in the second half of the year, but was still quite encouraging. MPL premium growth in 2021 was driven by firmer prices in all sectors of the MPL market and the gradual return to pre-pandemic levels of healthcare utilization. Further, inflation ran close to 7%—the highest rate seen in 40 years—while nuclear/aberrant verdicts continued to make headlines.
Premium Growth Stalls in 2022
However, in the same six-month period in 2022, premium growth for the industry slowed to 6.5%, while premium growth for the top 10 MPL companies fell to 5.1%. A segment-by-segment analysis reveals some useful intelligence about where growth rates for written premiums are changing and the driving forces behind those changes.
Physicians. In the first half of 2021, industry-written premiums for physicians increased almost 14%, while in the same period in 2022, premiums for physicians were up only 2.5%. Among the top 10 physician insurers, there was no discernable pattern in the premium growth rates in 2021 and 2022. Most companies show varying degrees of growth in both years, however, several companies showed large growth in 2021 but decreases in 2022. Analysis of 12 physician-focused risk retention groups (RRGs) showed premium growth of 31%, or almost $48 million, in the first six months of 2022. These trends suggest that business has migrated from physician insurers to physician-focused RRGs.
Hospitals. For the last several years, the hospital segment has recorded among the highest loss ratios in the industry. DPW for the hospital segment increased by 4.2% from 2020 to 2021 and by 13.9% from 2021 to 2022. Excluding MCIC Vermont, which drove a significant amount of DPW in 2022, DPW for the hospital segment was up 6.8% in 2021 and 7.6% in 2022—consistent (and necessary) premium growth rates for the sector.
Other Professionals. In the first six months of 2021, DPW for other professionals increased by 31% over the first half of 2020. However, a significant portion of this DPW can be ascribed to an outlier—DPW actually written for physicians rather than other professionals by Emergency Capital Management RRG, a subsidiary of private-equity owned Envision Healthcare. Excluding ECMRRG, DPW for “other professionals” increased by 16.1% from 2020 to 2021 and by 9.4% from 2021 to 2022. These adjusted premium increases likely represent a combination of higher pricing and exposure growth in ancillary professionals including nurse practitioners and physician assistants.
Other Facilities. The other facilities segment is dominated by commercial insurers. Due to the heterogeneous/high-risk nature of many of the risks that fall into this category, most of the top insurers write other facilities business through excess and surplus (i.e., non-admitted) subsidiaries. For the last several years, this segment—including long-term care facilities—has demonstrated the fastest growth within the MPL market. In the first half of 2021, DPW for this segment increased 31.8% over the same period in 2020. However, in the first six months of 2022, year-over-year growth was only 4%. While the sizable premium growth in 2021 was not unexpected, the drop-off in growth suggests that competition could be dampening price increases. Therefore, while price increases are expected to continue in 2023, they will likely be in line with those of 2022.
Take-Aways for 2023 and Beyond
- The MPL industry has not generated an underwriting profit since 2013 and this trend is expected to continue in 2022 and 2023.
- Loss reserve redundancies have largely dissipated.
- The industry will need to continue to raise prices to improve underwriting results.
- The average third-quarter 2022 MPL price increase was 3.1%, down from 3.2% in the second quarter, and more than two percentage points below average price increases of 5.6% in 2021.
- The most likely scenario is that the industry will stay the course and premium changes in 2023 will largely resemble those of 2022.
- The industry is well-capitalized and competition remains strong both in the traditional and alternative markets.
- Raising prices too much for risks that can find coverage elsewhere could result in a loss of business that is unlikely to be recouped.