The short answer is, if I knew, I’d be wealthy… and I’m not. The last 35 years of medical malpractice insurance history have been marked by hills (crisis) and valleys (profitability). Today we find ourselves standing in a “valley”, at least based on reported results from the medical malpractice insurance industry, one of the most profitable lines of insurance. It’s been approximately 10 years since the last crisis, and the national claim frequency has continued to trend below historical levels. State-specific “tort reform” measures appear to have weeded out the less meritorious claims and patient safety initiatives are having an impact on reducing preventable errors. Many agree: Life is good…for now at least!
Many of us old-timers have seen the cycles before – some caused by the markets themselves, and some driven by the legal system. Impacts from the healthcare provider side exist as well. So before we start celebrating by drastically reducing loss reserves, let’s consider these observations:
- Anecdotal reports of increasing claim severity (cost) are commonplace. It’s what I’m hearing from people in the med mal business during informal conversations with carriers, claims staff, actuaries, Risk Managers, etc.
- In 2012, the Pennsylvania MCARE Fund reported a 15% increase in average claim payout over 2011. I suspect this is related to the 15% increase in MCARE funding in 2013 over 2012, the second consecutive year the funding has increased.
- In many states, including Maryland and Pennsylvania, 2012 brought some of the largest medical malpractice verdicts on record (exceeding $50 million).
- According to the 2012 A.M. Best Special Report on Medical Malpractice, the 2011 Accident Year Combined Ratio was the highest in eight years. Additionally, while the overall industry reported a profitable Calendar Year Combined Ratio, it deteriorated 6% from 2010.
- According to the Administrative Office of the Pennsylvania Courts 2012 Report on Medical Malpractice, 2011 saw the first increase in the number of new med mal lawsuits in eight years, but the total number of new med mal lawsuits remains well below the 2000-2003 benchmark years.
As the nation continues to wrestle with overall healthcare spending levels and new types of healthcare financing and delivery models, don’t underestimate the volatile and, at times, unpredictable temperament of medical malpractice risk financing. The long-tail nature of the business has a history of changing course dramatically and quickly – so, tread carefully.
RCM&D can help you navigate this course and ensure that you are adeptly prepared to make sound judgments regarding your programs. RCM&D can provide insight into current claim trends, evaluation of claim reserves and interpretation of actuarial projections in support of risk financing efforts.
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