| Malpractice
Carrier Financials Look Positive
However More Physicians Move To Alternative Coverage
The annual number of malpractice claims (frequency) continues to fall. This
change in claim frequency has helped commercial malpractice insurers recover
substantially from the financial pounding the industry took between 2000 and
2004. The malpractice industry of 2010 is much stronger financially than it
was eight years ago and there is capacity for more growth. According to A.M.
Best, the medical malpractice market continues to remain soft, although experts
seem poised for the next round of adverse claims news that always seems to
follow improving financial conditions. According to the February 8, 2010 issue
of BestWeek, “Soft market conditions persist in the medical malpractice
liability space and provide a stark contrast from the early part of the last
decade. A composite of the industry’s 2003 combined ratios of 122.5 dropped
steadily to reach 82 in 2008." As financial results become known for last
year, many malpractice carriers are posting record-breaking low combined ratios
(the lower the better) for 2009.
The Growth of Alternative Markets
Premiums, however, are continuing to rise. As practice patterns change and
physicians seek relief from ever higher costs, more physicians are covered
for their malpractice through “alternative” insurers such as Risk
Retention Groups (RRGs) also known as “captives.” This means the
number of physicians insured by traditional “commercial” carriers
is slowly declining. According to a report by Massachusetts Division of Insurance
in 2008, RRGs typically used by large self-insured healthcare systems and major
physician groups, expanded their market share from 2002 to 2008 by 13%. At
the same time, licensed carriers lost market share by 10%. Licensed carriers'
overall share of the market dropped from 64% in 2002 to 54% in 2008. The Division
of Insurance reports that even though Massachusetts commercial malpractice
carriers lost market share, they collectively increased total premium from
$153 million in 2002 to $168 million in 2008 for a 10% increase. Collectively,
RRGs increased their total premium from $55 million in 2002 to $113.7 million
in 2008 for an increase of over 100%. Anecdotally, there are indications that
premium increases among the RRGs are starting to catch up. For years captives
offered doctors lower premiums but we are witnessing physicians returning to
commercial carriers with more competitive premiums.
Disappearing Occurrence
Coverage
On a national level, the occurrence form of coverage has declined dramatically
during the last 20+ years. Massachusetts is one of the last bastions
of occurrence form coverage as most doctors throughout the U.S. are using some
form of claims-made coverage. There are many reasons why occurrence coverage
is declining. Reinsurance carriers view claims-made as much more predictable
and easier to underwrite. The long tails associated with occurrence coverage
makes it less predictable for reinsurers (claims can come years after a policy
ends) and therefore many reinsurers prefer not to cover it. When they do provide
coverage it’s usually much more expensive than claims-made. The rise
in physicians moving into alternative types of malpractice coverage is also
affecting the rate of occurrence coverage here in Massachusetts. The captives
and Risk Retention Groups tend to use a form of so-called modified claims-made
coverage. This is technically a form of claims-made with the "tail" built
in so physicians can come and go without any tail concerns. In 2004 Connecticut
Medical Insurance Company (CMIC) entered Massachusetts, and in 2008 they introduced
their own form of modified claims-made coverage for medical groups having better
than average claims experience. The CMIC program, called MQI, tends to be substantially
less costly than occurrence coverage while providing the immediate built-in
tail typical of modified claims-made. For more information on the MQI program
call (800) 522-7426.
– Jack King
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