In many articles today you see the disasters around the globe from earthquakes to tsunamis, tornadoes and flooding from rain causing major losses for insurance companies. How will this affect the future of insurance and will it trickle down to the medical malpractice insurance market? What exactly is a hard market and soft market? Why would something that is so different from my medical malpractice insurance affect my premiums?
To start you need to understand the meaning of a few terms to make this easier.
Reinsurance – Spreading risk between several entities. This creates a level plane of loss between several medical malpractice insurance carriers instead of inundating just one carrier with ALL of the loss of a single risk. Medical malpractice insurance carriers will take a “part” of a very large risk and pass the rest on.
Hard Market – When premiums increase due to higher losses and restricted access through tougher underwriting processes to further insulate a company from the possibility of loss.
Soft Market – When medical malpractice insurance premiums are low or consistently drop over a period and underwriting rules loosen making access easier.
When the medical malpractice insurance companies across the world spread the risk for the policies they write across several companies (reinsurance), they assure that no one physician malpractice insurance carrier will suffer the loss at a catastrophic level. This is important for orthopedic surgeons, Ob/Gyn’s, and all physicians who purchase medical malpractice insurance. Being insured with a financially strong company is one of the most important components of purchasing coverage.
If a doctor or surgeon purchases coverage and that medical malpractice insurance company becomes insolvent due to catastrophic losses, the physician will be exposed. One medical malpractice insurance carrier seeking to reinsure their risk, or spread that risk out, pays a premium to the reinsurer to take a specific portion. This process continues until the entire amount is layered through reinsurance. It is important to note that reinsurance companies cover more than just medical malpractice insurance risk. They reinsure many different types of insurance risk.
When there are so many disasters all in a short period of time, all over the world, even if they are not related to medical malpractice insurance, the reinsurance market suffers losses and that restricts the availability of reinsurance. The domino effect brings tighter underwriting, higher premiums (hardening of market) or less access to reinsurance. This restriction causes smaller medical malpractice insurance carriers to charge higher premiums to physicians and surgeons in order to make up for the risk they carry. The eventual result is that you pay more for what you need and may not be able to get all the medical malpractice insurance that you need without restrictions if there are any adverse issues surrounding your risk.
So why would floods, rain, tornadoes, tsunamis and earthquakes effect your medical malpractice insurance? Simple, all reinsurance comes from similar sources and when that market tightens it trickles down to all lines of insurance. The increased cost medical malpractice insurance companies must pay for reinsurance and the lack of availability of that reinsurance become an issue for all medical malpractice insurance companies and eventually result in a hard market and higher premiums.
Only time will tell. If the news I read pulls any weight, two very large worldwide insurance sources state that these disastrous times will take their toll and send medical malpractice insurance back toward the hard market. The question is how long will it take for the results to begin to show? And how do we insulate ourselves today from the unknown tomorrow?