From rising mortality rates and staffing shortages to postponement of routine medical care and screenings, the COVID-19 pandemic has negatively impacted every aspect of the healthcare market.
While it would be easy to point to COVID-19 as the primary cause of the rate hikes and coverage challenges facing the medical professional liability (MPL) market, that would be misleading, according to a new 2022 Healthcare Market Outlook report from Risk Placement Services (RPS), the E&S wholesale broker and managing general agency.
Prior to the pandemic, the MPL market was already grappling with a number of challenges that impacted carrier profitability, such as: growing claims severity spurred by social inflation and nuclear verdicts; industry consolidation; and insurers exiting some segments or the entire healthcare market.
"For several years the MPL market was sending out clear signals that there were challenges ahead," said James McNitt, RPS Healthcare Practice Leader. "Insurance companies were slow to react to this reality, believing that with diligent underwriting standards, profitability was just around the corner. But it wasn't."
Reflected in a climbing MPL combined ratio over the past decade, insureds have faced ongoing rate hikes and coverage restrictions.
Currently, MPL rate increases are dependent on a range of factors across subclasses, but on average, healthcare entities are seeing 15-25% increases, according to the report.
"While most subclasses of MPL will continue to experience a rate increase in 2022, we are seeing signs of improvement in some areas, such as physicians and allied healthcare and even the better venues in long-term care," McNitt said.
He noted that underwriters today are also more proactive in factoring in current MPL exposures, such as: excluding COVID-19 or including coverage at an additional cost; tightening policy language to eliminate gray areas between coverages such as MPL and cyber; and asking insureds to share more of the risk through higher deductibles and retentions.
"Many unknowns still exist regarding the outcome of COVID-19 cases that were on hold when the pandemic brought the judicial system to a standstill. As the courts open back up, it remains to be seen whether MPL claims severity and nuclear verdicts will continue to rise," McNitt said. "Coverage issues will continue to evolve in 2022, which is why agents and brokers are encouraged to work with wholesale brokers, who are experts in MPL, to navigate this challenging market."
The following are key findings among MPL subclasses:
- Hospitals: To keep premiums manageable, academic and larger hospital systems have responded with their usual strategy of taking on more risk through larger retentions. What's new, however, is that community hospitals are also employing the same strategy in response to double-digit rate increases. Additionally, there are new entrants in the hospital market, which is offsetting those insurers who exited. While these new entrants are replacing lost capacity, they are being conservative in both their underwriting standards and policy limits.
- Long-term Care: Some MPL insurers are now offering LTC facilities 2-year rate guarantees, and many premiums are now flat on renewal after several years of 12-15% rate increases. "While the overall marketplace continues to experience strain via premium and deductible increases, we are seeing our carriers show a willingness to get more aggressive on the better accounts. The venue and facility claims history continues to be the most heavily scrutinized and underwritten part of LTC facilities," McNitt said.
- Allied Healthcare: Compared to other healthcare sub-segments, allied healthcare has fared well due to its diverse range of businesses and practices such as imaging centers, physical therapy and med spas. Recent premium increases have often been attributable to insurers trying to alleviate challenges in other areas, such as hospitals and long-term care facilities.
- Physicians: Physician's MPL coverage has seen sharp average premium increases over the past couple of years. But the full impact of the pandemic on MPL claims against doctors remains to be seen. The Federal Public Readiness and Emergency Preparedness (PREP) Act and state immunity laws make it harder to prove negligence or failure to diagnose on the part of frontline doctors. Some industry players view the physicians market as having turned a corner, but whether that means an improvement or simply stabilization remains to be seen.
Read more in the full 2022 U.S. Healthcare Market Outlook