Medical professional liability rate increases are expected to gain further momentum this year as unfavorable profitability trends for insurers persist, according to a report by A.M. Best Co. Inc.

Insurers also face significant liability uncertainties related to COVID-19, Best said in the report published Wednesday.

Capacity constraints in the most challenged sectors, including hospitals and nursing homes, have driven substantial rate increases, the Oldwick, New Jersey-based ratings agency said.

However, sectors of the physician medical professional liability market remain “quite competitive,” Best said.

Many MPL insurers adjusted their pricing over the last year following a decade of soft market conditions, loss cost inflation, declining reserve redundancies and the prolonged low interest rate environment, Best said.

Increases in MPL insurance premiums compound the economic stress on medical practices, making it difficult for some physicians to remain in practice, according to the report.

As the pandemic reduced office visits and elective procedures, some physicians were forced to close their practices, Best said.

Despite a slight improvement in net income in 2020, U.S. MPL insurers saw their sixth consecutive year of underwriting losses.

The combined ratio for Best’s composite of MPL insurers was 112.5% in 2020 and deteriorated significantly in the period from 2016 to 2020 compared with the prior five years, Best said. This was due to increases in losses and loss adjustment expenses incurred.

Direct premiums written for the MPL composite rose 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, Best said.

While loss frequency declined significantly in 2020 as non-essential procedures were either delayed or not performed due to the pandemic, this is likely to be short-lived, Best said.

“The segment may see an influx of pandemic-related claims for failure to diagnose, failure to protect patients, denial of care, allocation of scarce resources, and misdiagnosis of non-pandemic illness and disease due to canceled or delayed appointments,” the report said.

Many states have implemented immunity rules to protect health care providers from pandemic-related liability, but these laws are untested in the courts.

Proposed federal legislation that would protect health care professionals from liability related to COVID-19 was introduced by lawmakers late last week.

The rising cost of medical malpractice insurance will likely propel greater use of alternative risk transfer vehicles, such as captives and risk retention groups over the near term, Best said.

MPL risk retention groups still generate the largest amount of risk retention group direct premiums written, at $1.95 billion, 46% more than the $1.33 billion generated by risk retention groups focused on other liability lines of coverage (see chart).