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Medical malpractice insurance rates flat due to market forces

Push for higher rates tempered by other market forces

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Medical malpractice insurance rates flat due to market forces

Underwriters providing medical malpractice insurance for hospitals and doctor groups are trying to raise their prices, but competitive market pressures are working against them, brokers and insurers report.

As a result, they say, rates are flat—in contrast to decreases during the past several years—for the excess layer medical malpractice coverage that hospitals typically buy and the primary layer insurance usually purchased by physician groups.

“This year, there is more push (on the part of insurers) for rate than there was last year or the year before,” said Brenda Osborne, senior vp and chief underwriting officer for Lexington Insurance Co.'s health care business in Boston.

But they are pushing against competitive market forces favoring insurance buyers, particularly those with risk management strategies that are preventing losses, several sources said. Additionally, new medical malpractice underwriters have entered the market within the past few years, adding capacity that is making it challenging for insurers to obtain price increases, Ms. Osborne added.

“It appears there is some success in the industry to get rate,” Ms. Osborne said. “Now brokers are happy with flat as opposed to pushing for rate decreases.”

Insurers holding rates flat does represent a shift, said John Colosimo, senior vp and a health care practice expert in Philadelphia for Lockton Cos. L.L.C.

“It's interesting, because we are really beginning to see some rate pressure from the carrier side,” Mr. Colosimo said. “Everybody is trying to get rate. On good risks, it's very difficult for those markets to get rate even though they are trying.”

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Accounts with favorable risk profiles “are still able to hold (their costs) pretty close to flat, but if you have had some loss penetration into your excess layers...carriers are trying to make up for that now,” he said.

Insurers are focusing on attempts to increase rates, making it beneficial for hospitals and physicians wanting favorable pricing to demonstrate to underwriters that they have patient safety initiatives that work, said Sarah Pacini, vp of risk management and insurance at Oak Brook, Ill.-based Advocate Health Care Network.

During her Jan. 1 renewal, Ms. Pacini said she obtained 2011 pricing. She also sought a multiyear contract, which she was able to negotiate during renewals in prior years. But her insurers said they would want rate increases for the second year and any subsequent years.

“So we chose to do a single year,” Ms. Pacini said. “I continue to be concerned that it does seem to be threatening to be a hard market in the near future.”

Hospitals often purchase excess coverage rather than primary insurance, because they typically maintain large retention levels, self-insure, form a captive or other alternative programs, sources said.

Doctor groups, in contrast, tend to buy primary coverage because they are usually much smaller entities. But some doctor groups also transfer risk through alternative arrangements such as risk retention groups. Interest in alternatives also is adding to the competition faced by traditional underwriters.

A significant trend of hospitals acquiring doctor groups also impacts the medical malpractice insurance market, said John H. Mize, a medical professional liability expert and managing director for Towers Watson & Co. in Atlanta.

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Large hospitals acquiring the physician groups often pull their new employee doctors into the hospitals' self-insurance arrangements, Mr. Mize said, so those doctors are being removed from the pool of clients demanding coverage from traditional underwriters.

“If you are a physician insurer, you are seeing more of your marketplace being taken away by a brand new competitor, with that new competitor being the self-insured programs of physicians' new employers,” Mr. Mize said. “So you are seeing a smaller percentage of the physician marketplace actually being in the market to buy commercial coverage.”

And hospitals are not the only ones buying physician groups.

A health care market report published by Lockton in April said that during the past 12 to 18 months, private equity groups and health systems also have increased their acquisition of physicians and other hospitals.

This reduction in physician groups is a major factor impacting specialty insurer business, with the trend expected to continue, said Michael Kubik, vp of marketing for Coverys, a Boston-based medical professional liability insurer.

To help offset the loss of physicians to insure, specialty insurers are developing new products. For example, specialty insurers are capitalizing on the mergers and acquisitions activity by offering stand-alone tail policies at a lower cost than those offered by the insurer the physician or hospital is leaving, according to the Lockton report.

Hospital risk managers would like acquired physician groups to purchase tail coverage for losses accumulated before the hospital bought them, sources said.

But the cost for such coverage may make selling their business less appealing for the doctors, so it is not always possible for hospitals to acquire the physicians without also acquiring their tail liability, the sources added.

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