Medical professional liability insurance writers should get a good handle on the exposures they are insuring, according to an A.M. Best Co. analyst who took part in a recent A.M. Best Co. webinar on the medical liability market.
If not, "The risk is mispriced, so there's inadequate income to write those exposures," said Henry Witmer, assistant vice president at A.M. Best Co., one of the authors of A.M. Best's annual special report on the medical liability sector and part of a panel of experts to speak May 9 at the "State of the Medical Liability Insurance Market" webinar.
The problem is compounded when insurers don't know the extent of the losses incurred, and post inadequate reserves, Witmer said. "As the claims develop and results deteriorate, it's very difficult to try to catch up. You can't burden today's insureds with higher costs to cover past business mistakes," he said.
Witmer said the medical liability market has grown stable. "Balance sheets are very strong. Companies are demonstrating excellent operating results," he said.
Timothy J. Kenesey, president and chief executive officer of Medical Protective Co. said the challenge for the industry and health care providers is how to respond to the "significant" changes taking place. Challenges include competition, questions surrounding health care reforms and the ongoing challenges associated with predicting claims severity and frequency, he said. "If you miss on any of those three points, you can go from a position of being very well capitalized to being under-capitalized. It doesn't take that long for that change to occur," Kenesey said.
The MPLI market continues to outperform the total U.S. property/casualty market. MPLI writers posted a profitable combined ratio of 81.4 for 2010. While that's somewhat higher than the 80.8 combined ratio of 2008, it's still down from triple-digit combined ratios a few years ago.
While reserve redundancies have fallen $1 billion to $3.5 billion in 2010, the industry's reserves remain strong, Witmer said. However, he noted that the industry has long-term volatility, and a few years of positive results does not necessarily mean that trend will continue.
"It's a very stable marketplace. It's very good news. But what does tomorrow bring? There are some issues that we'll have to think about, including health care reform," said James Weidner, president and CEO of Cooperative of American Physicians and chairman of the Physician Insurers Association of America. "The business of medicine is going to change."
Insurers wonder what changes the Patient Protection and Affordable Care Act will create, he said.
The act brings 14 new possible causes of action that could mean more lawsuits for the health care industry, Weidner said. Also, companies wonder about how Accountable Care Organizations, which are being called for under the new health care act, will impact medical professional liability insurers, Weidner said.
James Hurley, senior consultant with Towers Watson, said the medical professional landscape is changing.
"Physicians are being employed by hospitals more and more frequently. The approaching health care reform would support that," Hurley said. "When you add 30 or 40 million people to the rolls of health insurers, and you have a graying population, you will see...building pressure on the demand side and no increased supply [which could lead to] unrealized expectations and dissatisfaction."
Medical Protective Co., a subsidiary of Berkshire Hathaway Group, currently has a Best's Financial Strength Rating of A++ (Superior). Cooperative of American Physicians Insurance Co. currently has a Best's Financial Strength Rating of A- (Excellent).
The top five U.S. medical professional liability underwriters by 2010 direct premiums written were MLMIC Group, Berkshire Hathaway Insurance Group, Doctors Company Insurance Group, ProAssurance Group and CNA Insurance Cos., according to the special report.
(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)
