In 2016, the medical professional liability (MPL) industry’s profitability was still strong, though income was derived from slightly improving investment income and still favorable prior year loss development. Current policy year underwriting results deteriorated by three points relative to 2015, likely owing to continued price competition. The 2016 operating ratio for MPL insurers stayed below the property/casualty industry average. The question abounds as to how much longer prior year reserve releases will be able to cushion MPL results. Milliman consultants Richard Lord and Stephen Koca provide some perspective in this article.
This article was published in the 2017 Fourth Quarter issue of Inside Medical Liability.
Over the past 10 to 15 years, medical professional liability (MPL) insurers have been fortunate to have enjoyed profitability strong enough to take the edge off the necessity of a deep structural market change. But the time is coming when insurers will have to face the reality. How will MPL insurers compete in a shrinking market and what will their role be? Milliman consultants Richard Lord and Stephen Koca provide some perspective in their article “A difficult time: MPL insurers navigate the future.”
This article was published in the 2016 Third Quarter issue of Inside Medical Liability.
The medical professional liability (MPL) industry experienced sustained profitability in 2013. Profits are likely to continue over the next several years. There are a few market uncertainties like healthcare reform and California’s Proposition 46 that will test insurers’ current business models though. In this article, Milliman consultants Richard Lord and Stephen Koca explain how these issues may affect the MPL industry moving forward.
This excerpt provides some perspective:
The huge influx of insured individuals, which is expected to top 30 million by the time ACA is fully implemented in 2016, could lead to a shortage of physicians, who may turn over some of their duties to nurse practitioners or physician assistants. Lacking the same expertise as a physician, these providers may fail to diagnose or misdiagnose some condition. On the other hand, they may form more personal relations with patients, and that has been shown to reduce the likelihood of a lawsuit.
Under collateral-source payment rules, the ACA may result in lower awards, since the cost of future medical care would no longer be included in awards, thereby limiting MPL insurers’ exposure to the cost to future health insurance payments in an award, or it might have only a negligible impact, depending on how it is administered and the courts’ decisions.
These scenarios are actually less than a handful of the dozens of possibilities that can arise from the ACA. Any one of the ACA’s provisions is unlikely to upend MPL insurers’ cost structure, but in tandem, the layers and layers of issues stated or implied in the ACA could tip costs in a direction that might prove difficult to absorb.
The ACA, however, is only one of the uncertainties facing MPL insurers.
The California question
In November, California voters will decide whether the state’s landmark statute, which caps non-economic MPL damages at $250,000, will remain intact, as written. Enacted nearly 40 years ago, California’s Medical Injury Compensation Reform Act (MICRA) has withstood a series of constitutional challenges, the last of which was in 1985.
…But MICRA is now being challenged in a ballot proposal [Proposition 46] that would raise the cap on non-economic damages to more than $1 million.
If enacted, the proposal would raise the cap on any claim that is outstanding as of January 1, 2015. MPL insurers and self-insured entities would see their liability increase for any unsettled claim on their books, as well as future claims. In all likelihood, claim severity would increase, but the frequency of claims would almost certainly rise if litigation were viewed as a more attractive means of compensation than it now is.
This development has far-ranging consequences, given the size of the California market, but it could also signal a change in sentiment if other states decide to follow California’s lead—since California has long been a state that’s a bellwether for social and economic change.
According to the National Conference of State Legislatures, 35 states have some type of cap on medical professional awards. How many states might again follow California’s lead and challenge reforms?
These two articles detail the influence that Proposition 46 will have on the future of MPL insurers and healthcare providers:
• CA Proposition 46: The end of an era for noneconomic caps?
• CA Proposition 46: Undoing tort reform?
Since the late 1990s, a cycle generally familiar to the insurance industry has been playing out in the medical professional liability (MPL) market. During the late 1990s and early 2000s, insurers’ costs increased rapidly. By 2001, after a bit of a lag, insurers started increasing their pricing. Then, between approximately 2003 and 2007, claim frequency dropped significantly for a number of reasons—patient safety initiatives, tort reform, public sentiment, and others. Meanwhile, net earned premiums continued to rise, peaking in 2006.
While this was occurring, insurers continued to increase rates, in an effort to correct prior rate inadequacies. As a result, reserves built up, allowing insurers to ease up on premium prices. This set in motion a wave of declining prices, in a fiercely competitive market that continues to this day. The results, in terms of policy writing and profits, have been phenomenal on a calendar-year basis.
However, the price war has escalated to the point where reserve releases have become the primary undergirding of profits. Today’s stellar financials are possible only because insurers are still reaping the benefits of the earlier high prices, at the cost of reserves, which have been steadily declining in the most recent years. There is reason to believe that current pricing, geared to the competitive market but likely inadequate to sustain ongoing profits, will not work much longer.
To read the entire article written by Stephen Koca and Richard B. Lord, click here.
Reprinted from the Third Quarter 2012 issue of Physician Insurer Magazine, Physician Insurers Association of America. Copyright, 2012.
The Atlantic reported last month about an unconventional aid organization in Pakistan that appears to be overcoming some of the barriers to traditional aid programs:
So while USAID is very good at quickly mobilizing assistance to disaster-afflicted communities, it carries a lot of political baggage — so much so in places like Pakistan that the U.S might be better off in the long run by downsizing USAID’s direct activities there and working through alternative programs.
One good model might be the Rural Support Programmes Network. A sprawling collection of local NGOs, the RSPN was founded by the Agha Khan Network in 1982, and has since become its own, separate program. While the stats about its reach are impressive — reaching millions of the poorest homes across a vast swath of Pakistan — what’s especially fascinating about RSPN are its methods.
Put simply, RSPN has a different focus than normal aid programs. They emphasize the development of institutions first, and only after that institution is established do they worry about its output or performance. The NGO also heavily invests in the smallest scale of the community, from conceptualization to execution, hiring mostly locals to administer projects. Lastly, they have extraordinarily long project timelines — sometimes as long as 15 years from start to finish.
RSPN’s activities might be of interest to readers of this blog because they run a significant health microinsurance program:
But the most interesting project RSPN has done in rural Pakistan is a collaborative micro-healthcare insurance system. For very little money — $3.50 a year in some cases — poor people can get access to basic medical care (especially maternity care) and assistance if they face hospitalization.
Although the medical professional liability (MPL) industry is still reporting positive income results, a key measure of profitability has started to show signs of deteriorating, indicating that insurers have likely passed an inflection point in the market cycle.
Perhaps even more of a concern is that MPL insurers’ current profitability largely stems from policies written during the early to mid-2000s, when premiums more than adequately covered losses.
This article, published in Physician Insurer, reviews various negative factors that may disturb the MPL market and send prices higher.