Understanding the state of the Medical Professional Liability (MPL) market involves examining losses, pricing, and written premium growth. Every six months, the MPL Association’s Research and Analytics Department issues a report analyzing these metrics with valuable take-aways that offer industry stakeholders insights into the industry’s financial performance.
In the mid-year 2023 report, the most recent data available, several trends manifested. As claim severity rises, the number of claims filed continues to fall. Although the number of claims did rise between 2021 and 2022, 2021 is an outlier due to the impacts of COVID-19 on the healthcare and court systems. In the same way, overall severity fell in 2021, but resumed its upward climb in 2022. The two years between 2020 and 2021 witnessed a decline in the number of $10 million and up verdicts, which rebounded with a vengeance in 2022 and 2023.
Pricing can be analyzed from an overall perspective and from individual subsets of the MPL insurance market: physicians, hospitals, other professionals, and other facilities. Other facilities includes senior living facilities and facilities such as outpatient settings such as surgery centers. From the macro perspective, pricing began to moderate in the fourth quarter of 2022 after a spike in the third quarter of 2022. That moderation continued into the first and second quarters of 2023.
In terms of direct premiums written (DPW), average premium growth from 2018 to 2023—with the exception of 2021—was 3.6%. In 2023, the 10 largest MPL insurers experienced a 1.9% growth in DPW, in contrast to the overall industry, which experienced DPW growth of 7%. Within specific segments, the other professionals and other facilities segments outpaced the others with DPW increases of more than 5% each.
Claim Frequency and Severity Continue to Diverge
Claim frequency will likely remain flat, but all signs point to claim severity continuing its inexorable rise upward. Barring significant changes in tort reforms and/or the legal system, there is no reason to expect a reduction in awards. Based on data from the National Practitioner Data Bank (NPDB), the number of paid claims has fallen by more than half between 2001 and 2022—from 16,116 to 7,800. Regardless of what happens to claim counts, average severity almost invariably rises every year.
Although there was a slight decrease in both claim counts and severity during the pandemic, these decreases were due to delays in judicial proceedings. However, now that society is back to normal there should be a return to the rising costs of claim settlements include higher jury verdicts, rising defense costs, third-party litigation funding, plaintiff attorney tactics, high-risk jurisdictions, and the presentation of life care plans.
Other claim trends of note include:
- According to Milliman, claims of more than $1 million remained stable between 2008 to 2013 but began to increase again since that time. Further, the percentage of closed claims with an indemnity payment of at least $5 million increased.
- Claim frequency is expected to rise within the senior living and long-term care provider segment, according to OliverWyman and Marsh Senior Living & LTC Practice.
- According to the MPL Association Data Sharing Project, indemnity payments of $1 million and more have doubled since 2001, representing 9% of all claims as of 2019.
- Nearly every state reported verdict awards of $10 million or more between 2016 and 2023, according to MedPro’s HCL Claims Data-Large Verdicts Map.
- Between 2019 and 2023, verdicts in excess of $25 million doubled as a percentage of all large verdicts, representing 49% of all large verdicts, according to the Trans Re Verdicts report.
Pricing Gains Moderate as Capital Levels Likely to Increase
While prices have risen over the last several years, the overall level of price increases appears to have moderated. Based on quarterly reports from the Council of Insurance Agents and Brokers (CIAB), average premium changes for the MPL industry began to accelerate in 2019 after 13 years of a soft market. Those premium increases peaked at 7% in the first quarter 2021 and have dropped to less than 3% each quarter of 2023. Although rising losses should be expected to result in higher prices, capital levels supporting the industry will probably increase as of Dec. 31, 2023, due to higher yields and improvement in the stock market. This combination of higher amounts of investment income and enhanced capital position can be expected to moderate pricing increases.
Although prices are expected to increase, we expect further shrinkage in exposures as physicians continue to migrate from independent practices to become employees of health systems or other corporate entities. This will dampen premium growth in the physicians’ sector. As hospitals continue to merge and grow, they will likely seek commercial insurance largely for the high excess layers. Given the loss experience for the hospital sector, excluding MCIC, written premiums will likely continue to grow at a mid-single digit rate. For the sectors of other professionals and other facilities, the combination of higher prices and growth of exposures will result in high-single-digit premium growth.
Some specific highlights for various sub-sectors include:
- Additional rate increases are very likely for the physicians’ sector, although there’s not a lot of clarity about the extent to which rates will rise.
- Hospital lead programs, which sit above the hospital’s retention, are experiencing higher pricing with typical renewals in the range of 5% to 15% depending on the venue and account claim history.
- Hospital excess programs, which sit above the lead programs and are much larger than in previous years, are the leading sector affected by verdicts of $10 million and larger. That means this sector of the market is experiencing disruption in availability pricing, terms, and conditions.
- While allied professionals are experiencing an increase in the number and average cost of claims, this sector is purported to be among the most profitable.
- All other professionals, a grouping that includes chiropractors, dentists, pharmacists, and podiatrists, represent a loyal market with turnover of less than 10% of insureds per year. Pricing for these professionals remains flat or up to a 5% increase.
- Senior living facilities represent a difficult market for insurers; as such, insurers are responding by raising or trying to raise rates and withdrawing from primary markets in favor of surplus lines and reinsurance.
- Facilities outside of inpatient settings are the fastest growing sector of the MPL market. Most of the coverage comes from the nonadmitted or excess and surplus lines market. Competition is intense in this space; despite this fact, insurers are getting higher prices but maybe not as high as losses might suggest.
Direct premiums written can be cyclical. The intense price wars of the late 1990s resulted in a five-year hard market from 2001 to 2006. Once underwriting profitability returned, the market began to soften, and, over time, market consolidation led to an overall decline in DPW. Between 2007 and 2017, the industry engaged in lite pricing wars.
But in 2018, the cycle turned again, a trend that continues into 2024. The industry raised prices to correct for unsatisfactory underwriting results, social inflation, rising claim and defense costs, and more. Except for 2021, the average premium growth was 3.6 percent. For the top 10 MPL insurers, premium changes for the year ranged from -8.2% for MCIC to +12.5% for Liberty Mutual. Premium growth rates were favorable from 2022 to 2023 for CNA and Coverys, while MCIC and Liberty Mutual saw significant premium growth rate decreases.
Some interesting points for each segment include:
- Physicians: DPW for physicians increased 2.4% in the first six months of 2023. While physicians remain the largest sector of the MPL market, the sector has shrunk from 50% of the market in 2018 to 43% of the market in 2023.
- Hospitals: Premium growth was in the low single digits in 2019, 2021, and 2023 with double digit growth in 2020 and 2022.
- Other Professionals: DPW increased 16.5% from 2020 to 2021 and 9.5% from 2021 to 2022, excluding Emergency Capital Management RRG. From 2022 to 2023, DPW increased 5.7%. Premium growth likely represents a combination of higher pricing and exposure growth in ancillary professionals including nurse practitioners and physician’s assistants.
- Other Facilities: Commercial insurers, including Berkshire Hathaway, Liberty Mutual, and CNA dominate this sector. Over the past few years, this sector of other facilities, which includes long-term care facilities, has been the most rapidly expanding sector in the MPL market.
The full report, “Medical Professional Liability Insurance Sector Report: 2023 Midyear Financial Performance,” is available on the MPL Association’s website.