Best’s Market Segment Report: Continued Uncertainty Clouds Horizon for Medical Professional Liability Insurers

·3 min read

Despite a slight improvement in net income in 2020, U.S. medical professional liability (MPL) insurers saw their sixth consecutive year of underwriting losses, according to a new AM Best report.

According to the new Best’s Special Report, "Continued Uncertainty Clouds the Horizon for MPL Insurers," the ultimate impact of the COVID-19 pandemic on 2020 claim costs still is to be determined. On a positive note, the impact of rising claim severity, social inflation and escalating frequency of high severity losses tempered following the onset of the pandemic, as court closures and backlogs slowed down legal processes. AM Best maintains a negative market segment outlook on the MPL sector, citing the following key reasons:

  • Ongoing pressures of depressed demand;

  • Rate adequacy concerns;

  • Rising loss cost trends and social inflation diminished reserve redundancies; and

  • The potential for additional claims owing to the pandemic.

The combined ratio for AM Best’s composite of MPL insurers deteriorated significantly over the prior five-year period due to increases in incurred losses and LAE incurred, and was 112.5 in 2020. Rising medical loss costs, along with relentlessly competitive market conditions and a steady reduction in the amount of favorable prior accident-year loss reserve development all contributed to the deterioration. Direct premiums written for the MPL composite was up 1.1% in 2020 to $7.9 billion, after increasing by 4.3% in 2019 and by 2.6% in 2018. This growth followed a prolonged period of soft market conditions and changing industry dynamics that dampened product demand.

Given the decade of soft market conditions, loss cost inflation, declining reserve redundancies and the prolonged low interest rate environment, many MPL insurers adjusted their pricing over the last year. Capacity constraints in the most challenged sectors, including hospitals and nursing homes, have driven substantial rate increases. However, sectors of the physician MPL market remain quite competitive. Rate hardening is expected to gain further momentum in 2021 as unfavorable profitability trends persist.

The MPL market still is likely to face one of its most difficult periods in a decade. MPL carriers, for the most part, have significant capital to help them weather the current storm. The long-term survivors will be those who can attract and retain their insureds, find ways to mitigate the effects of social inflation and the growth of nuclear verdicts, effectively use innovation, navigate the legal challenges and significant liability uncertainties related to COVID-19, and keep their finger on the pulse on ever-changing legislative and judicial environments.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=308571.

AM Best is hosting a complimentary webinar exploring the state of the MPL insurance market on Thursday, May 13, 2021, at 10:00 a.m. (EDT). During the event, a panel of AM Best analytic personnel and insurance industry leaders will discuss the present day and potential future impacts of the pandemic on MPL insurers. To view the webinar, please register at http://www.ambest.com/webinars/MPLI21\.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2021 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Contacts

Sharon Marks
Senior Financial Analyst
+1 908 439 2200, ext. 5477
sharon.marks@ambest.com

David Blades, CPCU
Associate Director, Industry Research
and Analytics
+1 908 439 2200, ext. 5422
david.blades@ambest.com

Thomas Mount, ACAS, MAAA,
CERA, CEEM
Senior Director
+1 908 439 2200, ext. 5155
thomas.mount@ambest.com

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com

Jim Peavy
Director, Communications
+1 908 439 2200, ext. 5644
james.peavy@ambest.com