In the third edition of the MPL Association’s state of the market report, we offer insights into the financial performance of the medical professional liability (MPL) market, provide commentary on factors both internal and external to the MPL market that can impact performance, and share views on the market provided to us by our members, partners, and other industry participants.
Although the MPL sector has historically been divided between MPL specialty insurers and multiline commercial carriers that write MPL business, these differences have become less significant over time as many specialist-owned companies have expanded into other healthcare sectors.
Despite differences in the business focus, corporate missions, and size of insurers in the MPL space, they have more in common than their differences might indicate. That’s why this report focuses on the entire industry rather than specialists versus commercial insurers. This edition of the report explores key 2023 financial metrics, the entry of new companies into the MPL space, and three pertinent external issues: social inflation, the rise of advanced practice practitioners, and medical deserts.
Data from this report was obtained from S&P Capital IQ Pro with the exception of two member companies—BETA Healthcare Group Risk Management Authority and Medical Assurance Company of Mississippi—that graciously provided their financial results for inclusion.
Financial Performance
Key financial metrics for the MPL insurance sector include financial performance—specifically combined ratios—premium growth, accident-year loss ratios, reserve changes in prior accident years, expenses, and dividends.
Combined Ratio. The industry’s combined ratio improved from 102.4% in 2022 to 101.3% in 2023. This marks the second consecutive year in which the industry’s underwriting results have improved. Although this result represents the best performance since 2017, when the industry reported a combined ratio of 101.7%, the industry still failed to generate an underwriting profit. This situation has persisted since 2013.
A drop in the loss ratio of 2.2 percentage points is the primary driver behind the improvement in the combined ratio. That being said, the industry’s expense ratio increased in 2023 by 1.0 percentage point. While the combined ratio for the top 20 companies in the sector was unchanged in 2023, the remainer of the industry demonstrated better results with a decrease of 4.3 percentage points in their average combined ratio.
Overall Premium Growth. The industry experienced modest premium growth of 3.3% in terms of direct premiums written, which is much lower than the increases of 10.6% and 6.7% seen in 2021 and 2022, respectively. While the top 20 companies by size experienced premium growth of 5.2% in 2023, all other companies experienced a negative premium growth rate of -1.4%, creating average premium growth for the industry of 3.3%.
Physician Premium Growth. As the number of independent physicians declines, there has been corresponding small growth in the amount of direct premium written for the sector. In 2023, this increase was 1.3%, which was the smallest increase of any MPL sector and below the direct premium written increase of 2.9% in 2022. Premium growth for the top 20 companies was 3.0%, compared with a decline of 7.7% in written premiums for all other companies.
Over time, companies in the MPL sector have sustained declines in physician exposures. Our investigation of rate filings submitted to various states reveals that insured physician exposures have decreased more than 25% during the past decade. All of the rate filings that we reviewed were for physician-owned carriers and rank no lower than number two in written premiums in their key markets. This means that even when rates are increasing, these companies will find it difficult to grow their direct premiums written.
Companies that grew premium significantly include:
- CNA up 21.1% with most of the growth in Delaware, New York, and Texas
- The Mutual RRG up 20.7% with growth in California, Florida, and Indiana
- Applied Medico-Legal Solutions up 17.1% with growth in California, New York, and Texas
Companies with significant declines in premiums include:
- Lone Star Alliance RRG down 6.7% with declines in Colorado, Florida, and Nevada
Hospital Premium Growth. Following robust growth in 2022 of 14.8%, in 2023, direct premium written increased at a much lower rate of 1.7% in the hospital sector. A review of Schedule P for a select group of hospital specialty companies revealed that these companies booked an average loss and loss adjustment expense (LAE) ratio of 97% for accident-years 2021 to 2023. This compares quite unfavorably to an average loss and LAE ratio of 79.5% for the total MPL industry during the same period.
Companies with significant premium increases in hospitals include:
- Professional Security Insurance Company, a subsidiary of MagMutual, where written premiums for hospitals increased 169.3% based on growth in North Carolina, West Virginia, Georgia, Illinois, and New Jersey.
Companies with significant decreases in written premiums for hospitals include:
- Mountain Laurel RRG whose written premiums decreased 50% in 2023. This drop was due to a one-time novation that occurred in 2022, which had the effect of increasing premiums in that year by $77 million.
- Clinician Assurance was down by 25.3%, which was due to the one-time effect of a $37 million tail policy written and fully earned in 2022.
Other Professionals Premium Growth. Similar to the physician and hospital sectors, direct premiums written for other professionals experienced much lower growth in 2023 (1.7%) than in 2022 (11.8%). Most of the growth in 2023 was concentrated in the top 20 companies where written premiums increased by 4.9%. Outside of the top 20, written premiums decreased by 33.4%.
Companies that experienced the largest growth in this category were:
- Curi whose premiums increased 95.1% with most of the growth in the states of North Carolina, Virginia, Georgia, and Pennsylvania.
- The Doctors Company where premiums increased 15.7% with most of the growth in Florida and Texas.
- Admiral Insurance Company, an excess and surplus lines subsidiary of W.R. Berkley, whose premiums increased 14.4% with most of the growth occurring in California, Florida, Texas, and Georgia.
Other Facilities Premium Growth. The fastest growing subsector of the MPL industry, other facilities premium increased by 10.7% in 2023, following an increase of 7.2% in 2022, which had followed 20% average premium growth between 2018 and 2021. This sector is dominated by commercial carriers that include Berkshire Hathaway, Liberty Mutual, and CNA. Most of these top insurers write other facilities business through excess and surplus lines subsidiaries. Growth rebounded this year likely due to a combination of firmer pricing conditions, especially in the long-term care market, and the continued exposure growth of non-hospital facilities.
Companies with much higher-than-average premium growth in this category include:
- Vantage Risk Specialty Insurance Company, a subsidiary lines carrier of Vantage Group Holdings, saw premium growth of 78.7%
- Homesite Insurance Co. of Florida, a surplus lines subsidiary of American Family Insurance, had premium growth of 73.9%
- Allied World Surplus Lines, a subsidiary of Fairfax Financial, grew 26.9%
- Bridgeway Insurance Company, a surplus lines subsidiary of Munich Re, grew 23.7%, primarily in the states of Georgia, Illinois, and Ohio
Entry of New Companies into MPL Space
In 2023, 11 companies reported MPL direct premium written after recording no premium in the previous four years. Of these 11 companies, none were in the top 20. Three of the 11 focus exclusively on the MPL space, while the others are multiline commercial carriers:
- Mountain State Healthcare Reciprocal RRG offered coverage between 2008 and 2018, when it began to wind down its operations and went into runoff. Last year, the company began underwriting again with 10 members that re-enrolled. Direct premium written totaled $15.2 million of MPL with business across Colorado, Idaho, Montana, New Mexico, Oregon, and Wyoming.
- ORCA RRG was licensed in 2022 and is domiciled in Montana. In 2023, the company wrote $10.7 in direct premium written for physicians in the state of Washington.
- Indigo RRG was licensed and began operating in 2023 in Florida, Ohio, and Oklahoma where it had $57,000 of direct premium written. The company expects to register in many more states during 2024 in an effort to write more premiums and improve profitability.
Accident-Year Results and Loss Reserve Development: Calendar year losses and LAE represent all loss activity that occurred during the calendar year, regardless of when the losses occurred. As such, calendar year 2023 represents losses from accident years 2023 as well as any loss and LAE activity in 2023 from accident years 2022 and prior.
Between 2014 and 2018, ultimate accident year loss and LAE ratios increased from 77% to almost 94%, mainly in the claims-made sector. Between 2018 and 2021, due to a firming market and aberrant loss patterns caused by the COVID-19 pandemic, the ultimate loss and LAE ratio dropped to 79%, mostly all in the claims-made business. Since 2021, the total ultimate loss and LAE ratio has been flat at 79.5%, while the occurrence loss ratio has increased by 2 percentage points.
If loss reserves for prior accident years develop more favorably than expected, the current calendar year loss ratio will be lower than the accident year loss ratio. If, however, prior years’ losses develop worse than expected, the current calendar year loss ratio will be higher than the accident year loss ratio. In 2023, the industry experienced favorable reserve development for accident years 2022 and prior to the tune of a 5.1% reduction in the 2023 combined ratio. This compares to a benefit of 4.5 percentage points in 2022 from accident years 2021 and prior.
Most of the favorable reserve development in 2023 came from accident years 2021 and 2022. This pattern is similar to the favorable reserve development in 2022, most of which came from accident years 2020 and 2021. Whether the pattern of reserve development in 2023 is reflective of a drop in claim frequency that occurred during COVID-19 or if it is a result of the industry taking reserves down too soon remains to be seen. Data for MPL reported claims between accident years 2014 and 2023 reveals that while there was an initial drop in reported claims for accident years 2020, 2021, and 2022, subsequent development shows that claim counts for the COVID-19 years are not developing in a way that demonstrates they will be materially lower than claim counts for prior years. In addition, reported claims for accident year 2023 are not only 13% higher than those for accident year 2022, but they are also higher as of 12 months than those for any accident/report year since 2014.
Companies with the largest amounts of favorable reserve development were:
- Berkshire Hathaway with $352 million
- The Doctors Company with $145 million
Companies with the largest amounts of unfavorable reserve development were:
- Zurich with $103 million
- CNA with $51 million
- ProAssurance Corp. with $37 million
Expense Ratio: While the industry’s expense ratio increased by a modest 1 percentage point, the actual underlying data reveal an increase of 7.6% in total expenses. Breaking this 1-point increase reveals general expenses (salaries, equipment, rents, etc.) contributed 0.43 point while commission and brokerage contributed 0.24 point and other acquisition 0.17 point. Essentially, the rise in general expenses was equal to an additional $81.3 million and the rise in commissions and brokerage was equal to an additional $65.5 million.
Dividends: During the last several years, dividends to policyholders have represented less than 2 percentage points of the industry combined ratio. However, some companies were very much the exception, with dividends representing more than 20 percentage points on the combined ratio in 2023. In 2023, the average dividend ratio for the top ten companies that declared dividends was 6.5%. For all other companies the 2023 dividend ratio was 0.2% and for the industry it was 1.4%.
Noteworthy Trends
Future performance is dependent upon financial results as well as external factors that could impact the healthcare and MPL industries. These trends include social inflation, advanced practice providers, and medical deserts:
Social inflation tends to get at least some of the blame for megaverdicts as well as the general trend of verdicts and claim settlements increasing over time at a rate higher than general inflation. However, if social inflation is as rampant as is widely believed, we would expect the loss ratio to deteriorate or we would see large price increases. However, large losses that exceed organizations’ retention levels typically show up in the ceded loss ratios, which are generally the responsibility of reinsurers. Our analysis reveals that the average ceded loss ratio for the industry between 2019 and 2023 was 95%, while the average ceded loss ratio for MPL hospital specialists was 110%. This suggests that social inflation, if it exists, is likely to be found within the reinsurance industry’s results.
Advanced Practice Professionals, or APPs, such as nurse practitioners and physician assistants are increasing and are likely to continue to increase as a percentage of the healthcare provider workforce. Both professions are experiencing an increase in MPL claims. As the MPL market evolves in its evaluation of APPs, the industry needs to re-evaluate insurance classifications, adjustments in premiums, and the development of MPL insurance policies tailored to specific practice areas.
Medical Deserts are areas with specific types of healthcare shortages such as surgical deserts, pharmacy deserts, and/or gynecological deserts. Recent events, including the COVID-19 pandemic and the overturning of Roe v. Wade, have intensified these shortages. While the pandemic led to numerous healthcare facility closures in rural areas in general, legislative changes concerning reproductive rights have resulted in the closure of many women’s health clinics. Both of these trends have escalated the crisis of healthcare accessibility, meaning that residents often face long travel times for care or have to forego care entirely.
In response to these challenges, initiatives pioneered by educational and healthcare organizations are being launched to enhance access in these underserved areas. The lack of access not only jeopardizes patient health but may also increase medical liability risks.