Lockton | Market Update

U.S. - Healthcare

Printable Version

The medical malpractice market remains competitive despite declines in both underwriting and investment results. While the industry ended 2007 with a combined ratio of 83 percent (10 points more profitable than the rest of the commercial lines market), analysts forecast that 2008 combined ratio is projected to near break-even. If this trend continues, 2009 will be the first year of negative underwriting results since 2005.

Claim frequency appears to have remained flat. Because of the long tail associated with medical malpractice claims, it is difficult to determine if this trend will continue. Industry spokespersons attribute the trend to several factors, including positive economic conditions prior to 2008, effective tort reform, patient safety initiatives, and aggressive claim defense, especially on the part of self-insureds.

Severity of claims remains high, seeing around a 3 percent increase. But, this is a contrast to double-digit trends of the late 1990s. Markets tell Lockton they are closely watching the number of severe claims, as it seems to be growing.

Capacity Is Plentiful

Capacity in the medical malpractice market is plentiful. Incumbents have attempted to hold the line with flat pricing to slight reductions, while competitors are eagerly competing on both price and coverage terms. Recent market developments include:

IronHealth’s announcement of its expansion into new products and industry segments, including miscellaneous facilities and long-term care.
Formation of a Bermuda underwriting office for London insurer Hiscox.
Hartford’s s announcement of its intent to launch a health care practice to write outpatient facilities and small to midsize hospitals.
An aggressive managed care market, offering broad forms that include privacy and cyber liability, antitrust, punitive damages, and regulatory coverage that includes HIPAA claims.
New entrants into the life sciences segment, offering broad coverage forms that cover the life cycle of product research, development, and distribution.
Broadened coverage terms and reduced premiums for privacy protection and cyber liability policies that address exposures unique to health care.
Renewed interest in regulatory defense products in response to the government’s Medicare RAC—Recovery Auditor Contractor—Program.

Current Market Conditions

Lockton expects current market conditions to continue into the first quarter of 2010, driven by relatively positive underwriting performance. Medical malpractice is a volatile coverage, subject to wild swings in its market cycles. When and how severely the market turns is dependent on several factors, both known and unknown. Of the known factors, first and foremost is the economy. As the combined ratio increases, insurers must place greater emphasis on underwriting in order to maintain a positive bottom line. It is anticipated that the weakening economy will spur an increase in lawsuits, both meritorious and frivolous.

As far as the unknowns, some industry insiders are concerned that carriers may have released prior years’ loss reserves before accident years have fully developed. Additionally, tort reform is under attack in several states and could be eroded. One of the biggest uncertainties is what final health reform legislation will look like, and what will be the impact on medical malpractice. Further, health care institutions and providers continue to face ever-greater economic pressures on their revenues due to budget shortfalls at the state and federal level. These economic pressures lead to loss of nonessential support staff, which places a greater burden on patient caregivers and deferred implementation of new technologies, such as electronic medical record systems. Health care entities continue to be subject to new and greater regulation in the areas of privacy and security as well as the MMSEA Extension Act. All of these factors may continue to put upward pressure on rates and premiums as we move into 2010.

Please contact your Lockton Representative for further information regarding any information contained in this market update.

	Becky Sullivan Senior Vice President Healthcare Practice Leader Kansas City, MO Tel: 816.960.9450 E-mail: bsullivan@lockton.com
	Dana Switzer Senior Vice President Unit Manager Kansas City, MO Tel: 816.960.9601 E-mail: dswitzer@lockton.com
	Sheila Callison Vice President Unit Manager Los Angeles, CA Tel: 213.689.2337 E-mail: scallison@lockton.com