Rates are on the rise, medical malpractice insurance carriers are consolidating, and it’s becoming increasingly more difficult to find insurance coverage. The medical malpractice insurance market is cyclical and has experienced years of ups and downs in the past 3 decades. Overall, rates are slowly increasing, underwriting guidelines are tightening, and more than a few insurance companies have been acquired, merged with other insurance companies, or completely gone out of business within the last few years creating what is known as a Hard Market.
Factors Contributing to the Hard Market:
- Malpractice Insurance Carriers’ insufficient rates to gain market share
- Consolidation, mergers, acquisitions, and carriers going out of business
- The severity of claims in recent years
- Carriers’ expenses are higher than what they are bringing in
- Inflation and higher cost of doing business
- Carriers’ lower rate of Return on Investments
This is not the first hard market in the U.S. medical malpractice insurance market. The cycles of the hard and soft markets have fluctuated over periods of 10 – 12 years beginning in the late 1990s. At that time premiums went up at alarming rates, insurance carriers were not profitable, and many collapsed or left the market, and doctors with even one claim were denied coverage in the standard market. Insurance experts referred to this as a med mal crisis, and countless medical practices and physicians either moved to a more favorable state, limited procedures, retired early or just closed their doors because they couldn’t find affordable coverage.
This extremely hard market continued into the 2000s until about 2006 when many alternative risk companies started popping up all over the country. Physician-owned, mutual, and mutual assessable, risk retention groups and other companies helped provide affordable coverage in competition with the large, national stock carriers. This was important relief for the healthcare industry. Premiums came down, there was competition for business, and underwriting guidelines loosened. The economy plays a significant role in creating a soft market because insurance companies can make more money in a good economy through return on investments.
The soft market that began slowly in the mid-2000s continued into 2019. Rates consistently came down year after year as competition grew, and company profits were high. This was an extremely favorable era for physicians and medical groups. Premiums were not a significant expense compared to other budget items, and coverage was easy to obtain, even with a negative claims history. But something had to change. Medical professional liability insurance carriers were not collecting enough premiums to cover claims, so their surpluses eventually were eroded, and the severity of claims impacted them more than expected. By 2019 most carriers had to increase rates.
The increase in premiums for medical malpractice insurance has contributed to 2023 with small, modest increases at first and then a continual step up each year by almost every carrier in most states. Add to that a few companies going out of business, consolidations, mergers, and acquisitions, and the supply and demand is cycling back to what it was 3 decades ago. So, what is the state of the medical malpractice insurance market today?
Today the top 6 medical malpractice insurance carriers have been gobbling up market share. Berkshire Hathaway Inc. (MedPro), The Doctors Company (TDC), ProAssurance Corp. CNA, Coverys, and Mag Mutual have more market share than all other companies combined. These large carriers continue to grow even in a hardening market.
One of the factors causing the current hard market is the medical malpractice insurance company’s Combined Ratios being over 100%, which means they are spending more than they are bringing in. Until their ratios are below 100% they will need to keep taking rate increases to gain profitability.
Another factor contributing to the hard market is the severity of medical malpractice claims. Industry experts measure the frequency of claims (how many claims each year) and the severity of claims (how much is paid out for claims). In recent years there have been huge payouts. These payouts have caused the industry’s overall combined ratios to increase up to 110%. Experts believe this will continue, even though there was a decline in severity due to COVID-19 and delays in filing claims and courts being backed up.
Other economic factors have an impact on the hard market. Inflation and increased expenses have made the cost of doing business a lot higher since the pandemic. Also, a lower rate of return on investments means carriers are not making as much on the money they invest, which affects the bottom line. All these factors have created a hard market, which will continue until a balance is reached and the big insurance carriers become profitable once again.
As healthcare is always changing, the medical malpractice insurance market is also changing and fluctuating from a hard to a soft market. These cycles are a normal part of the insurance market and will continue into the future. The medical professional liability insurance brokers at eQuoteMD understand the market and can adjust to the changes. Let us show you how to save time and money on your next medical malpractice insurance renewal. We have solutions for every type of practice in every state.