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The medical professional liability insurer segment continues to produce favorable overall earnings, but insurers in this space still face significant challenges, including an ongoing migration of physicians away from independent practices to hospital or large group health care providers and a lack of investment in technological innovation, according to a new report by A.M. Best Co. Inc.
Overall, the MPL insurance sector has achieved better than average profitability, increased its capital and surplus and generated favorable loss reserve development — the only segment to do so in each of the last 15 years, according to the Oldwick, New Jersey-based ratings agency.
Direct premiums written for AM Best’s MPL composite was up 3.2% in 2018, to $7.4 billion, with strong growth noted in hospital and other health care facility premiums while premiums for physicians dropped slightly, according to Best. The property/casualty industry’s top 20 MPL writers based on statutory direct premiums written accounted for 69.9% of direct premium volume in 2018, up slightly from 68.4% in 2017, according to the report, released Tuesday.
But while many financial metrics remain encouraging, MPL insurers continue to face market pressures and are looking at alternatives to combat these challenges, the ratings agency said.
“For some, it’s mergers and acquisitions; for others, it’s diversification; for the remainder, it’s purely sticking to their knitting,” Best said in its report. “Regardless of the method, the generally accepted business practice over this period has been to retain as much existing business as possible despite potential increases in loss costs. This has resulted in declining premiums, rising underwriting ratios and diminishing reserve redundancies.”
In recent years, growing numbers of doctors have moved from working as solo practitioners or in small practices to being employed by hospitals or other large medical organizations.
“As industry consolidation and physician migration trends continue, insurers undoubtedly will be pressured to either accept these changes or find innovative ways to adapt,” the report stated. “Fortunately for insurers, time is on their side as the pace of this change has been incremental. MPL insurers also have benefited from their ability to retain existing business, as well as from loss frequency that remains benign.”
About 90% of health care organizations consider themselves vulnerable to cyber threats and MPL insurers continue to provide insureds cyber liability coverage as an addition to basic policies, often free of charge for limits up to $50,000 or higher, according to Best. Most MPL writers cede the risk through 100% quota share reinsurance to companies that specialize in underwriting cyber risks and handling these types of claims.
“As cyber risks continue to emerge and the scope of cyber breaches expands, incorporating language in policies that clearly identifies covered exposures is critical,” the report said.
In addition, “the opioid epidemic has resulted in an alarming number of deaths throughout the country” and opioid prescriptions are now the leading cause of medication malpractice claims, according to Best.
“Providing a deeper understanding of the legal framework and the types of measures that can be used to limit the risks associated with prescribing opioids may help counter the negative effects of recent litigation, which has resulted in verdicts favoring plaintiffs,” the report stated. “Such a framework could mitigate physicians’ liability exposure so that doctors may be able to prescribe these medications when appropriate.”
Given all these headwinds, Best is maintaining a negative outlook on the MPL segment for 2019, with the overarching theme being shrinking demand, prolonged soft market conditions, ongoing challenges to tort reform and diminishing reserve redundancies, according to the report.
“Tort reform challenges in states across the country will also remain of vital importance as will any changes in health care legislation at the federal level,” Best said.
In September 2018, Best released a special report on innovation that confirmed that innovation is lacking in the relatively conservative MPL segment, with virtually none of the MPL respondents believing that the industry has adopted or implemented innovation “extremely well,” according to the report.
“The more established carriers are investing heavily in technology to compete with startups as companies realize that their older processing systems are having negative implications on their business operations,” the report stated.
About 90% of MPL insurers believe that innovation can help them overcome challenges with system or process inefficiencies while 65% think insurtech can help them address business model challenges and 55% believe it will help mitigate underwriting risk, according to the report.
Although MPL insurers are trying to invest more in innovation, they lack funding and qualified personnel, according to Best. A talent gap is the biggest obstacle to developing an innovation process according to 23% of MPL insurers, followed by a lack of funding at 20%. Only 4% of MPL companies have a personnel team dedicated solely to innovation while 17% have none, according to the report.
Health care is about to change beyond recognition. A host of technologies are uniting to transform the way patients are treated and cures developed — from artificial intelligence to remote patient monitoring and interactive telemedicine services.