Survey: Medical Liability Insurers Optimistic About Short-Term Market

April 25, 2008

U.S. medical liability insurers anticipate their primary rate levels to decrease in 2008, compared with 2007, while the average frequency and severity of claims sustained by their firms will remain about the same as last year, according to a survey of medical liability insurance executives.

“The survey results indicate, overall, optimism and confidence among medical liability insurers for the near-term future,” commented Charles (Chip) Ott, executive vice president and co-leader of the professional liability practice for the reinsurance broker Collins. “There are, however, signs of growing concerns about the competitive marketplace.”

The survey, conducted by reinsurance broker Collins at its seventh annual Medical Liability Insurance Networking Forum in Las Vegas, Nev. The Forum is held each year for insurance and reinsurance company officials in the medical liability business segment.

Senior Vice President and Professional Liability Practice Co-Leader Steve Underdal says the survey revealed that medical liability insurers were split on whether they would declare a policyholder dividend in 2008, with 45 percent indicating they would and 49 percent indicating they would not.

“This speaks not only to favorable market conditions but to the strong performance and operations of these companies,” Underdal said. “For those who said they would pay a dividend, estimates as to the sizes of those dividends ranged from $5 million to more than $40 million.”

Medical liability claim trends
Of the insurance company executives surveyed, 72 percent said they expected their firms’ primary rate levels to, on average, decrease in 2008, while 24 percent said they expected rates to remain level with 2007.

Sixty-nine percent said the average frequency of medical liability claims sustained by their companies would remain the same as last year. In terms of the severity of claims, however, 55 percent said they expected the average severity would remain the same this year, compared with last year, while 39 percent expected an increase in severity.

When asked to identify the single biggest reason for the overall decline among the frequency of medical liability claims in recent years, 33 percent said it is because the plaintiffs’ bar is being more selective in their choice of cases due to the increased costs of litigating medical malpractice suits. Some 24 percent said the decline was due to tort reform. Other factors identified as key reasons for the decline were effective risk management (17 percent), heightened media attention to the medical malpractice problem (17 percent) and a decision by the plaintiffs’ bar to seek other, more lucrative tort opportunities (9 percent).

Insurance company executives were split on whether health care providers, overall, are doing an effective job of lowering the risk of medical malpractice through risk management and loss control. Some 58 percent said they were, while 42 percent said they were not.

Concern for market pressures
When given five options as to what they expected to be their biggest challenge in 2008, 74 percent of the insurers identified the “competitive market,” far outpacing “jury verdicts” (2 percent), “overall claim costs” (2 percent), “physician errors” (2 percent) and “none of the above” (20 percent).

Economic trends also dominated the insurers’ long-term concerns. When asked to identify the health care issue that most concerns them “looking five to 10 years in the future,” 61 percent pointed to the financing of the U.S. health care system. Some 20 percent said they were most concerned about an adequate supply of trained health care professionals; 13 percent, the aging of the U.S. population; and 2 percent, stem cell research, cloning and other issues with ethical implications.

Marketplace outlook
All attendees of the Forum, including both insurance and reinsurance executives, were asked for their views on market conditions and prospects for medical liability insurers. Thirty-eight percent said the current “soft” insurance market would end in 2011; 28 percent predicted it would end in 2010; 23 percent predicted an end by 2012 or later; and 11 percent said the market turn would come in 2009.

Nearly half, or 45 percent, of those surveyed said that, by the end of 2008, there will be about the same number of medical professional liability insurers, while 37 percent predicted there will be more medical professional liability insurers, and only 18 percent said there will be fewer insurers.

As for the alternative market, including captives and risk retention groups, 49 percent said the size of the alternative market for medical professional liability will remain the same in 2008. Nearly a third, or 32 percent of respondents, said the alternative market will increase, while 19 percent said it would decrease.

Source: Collins,

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