Medical Professional Liability Industry 2018 Market Update
DescriptionIn our first 2018 installment of MPLI Executive Insights, we sat down with Bill Burns, Vice President of Insurance Research at Conning. Mr. Burns was the keynote speaker at the 2018 PLUS Healthcare & Medical PL Symposium where he gave a presentation titled "MPL Market Update". The topics covered in this interview:
- 1. How healthy is the medical malpractice insurance (MPL) market?
- 2. Will the medical malpractice insurance (MPL) market harden?
- 3. What was the most concerning stat presented during your keynote speech?
- 4. What is the new normal in medical malpractice insurance (MPL)? What are the cycles going to look like?
If you look at the amount of surplus the market has, it’s very healthy. You know, we look at the specialist side of it, in particular, because they’re all in. It’s like the chicken and the pig with bacon and eggs. You know, the specialist companies are all into the MPL market, and they’ve been very prudent stewards of their capital. The multi-line companies, you know, they do different things, so it’s hard to look at their capital base. But if you limit it to the specialists and you look at their capital and the premium they’re writing to that capital, they seem to be very financially sound right now.
It depends on how the companies wanna play this. They could extend this soft market out quite a while because of the capital they’re sitting on. It’s not like the last cycle where 15 years ago where companies were bleeding money, they ran out of reserve redundancies, and then their capital base dried up. These companies could run at very high combined ratios for a number of years before they decide they might wanna make a price change in order to keep their financial stable. But I think, I’ve been hearing rumors about some hardening, companies talking about getting rate, but who’s gonna be the first one to blink.
I think it’s the fact that rates haven’t really done anything for 10 years now. And eventually, you have to acknowledge, if you believe that you should charge the right price, for a risk, then at some point rates have to change, likely have to change. If your combined stayed where it was, then that would suggest prices would never have to move, but that’s not the case, the combined is going up. And even though reserve redundancies are still healthy, if you look at this year for the sample companies that we’ve had reported so far, they actually took more down in reserves this year than they did last year.
But the problem is, at some point, they’re gonna have to make a hard decision about whether they wanna play with the rates, raise them, or possibly lose that business. So I think that’s the decision companies have to make all the time is, “What would taking more price do to me?” And, probably, in a lot of cases, when you look at how many companies are competing in this space, the business will probably walk.
Well, if we look at the brief history, the first crisis was one of availability, back in the ’70s. The next one was one of affordability, where the product was there, but it was very costly. The next one was one of, I hate to say, a crisis of stupidity. Companies did a lot of dumb things they shouldn’t have done, and their capital couldn’t support it.
Now, I think we’re at a new normal, I think those, your words, were right. Companies are very well-capitalized. They can afford to underprice their product, if that’s what they’re doing, and they can absorb it for quite some time. The difference here is that premiums have always gone up. In any of those crises, when you look, there was room for the premiums to go up. Now, it looks like that slippery slope is going to continue. The exposure bases are going away, the rates have stayed soft, so I think that the crisis, if it were to occur, would be on individual company levels. But I don’t think the industry is going to be in quite the same crisis mode that it has been in prior crises.
That is a possible scenario that we’ve talked about within the walls of Conning, you know, that you could have several large companies that take over the space. I would contend on the other hand, though, having worked for a doctor company, the doctors are incredibly loyal to their companies. They like the fact that they have their own entity, they’re not beholden to a larger commercial operation. They can run it the way they see fit, best they see fit, and they bring a tremendous amount of value to their insureds.
I believe their claim-handling is superb, I believe that the people they have working at those companies are incredibly loyal. And I don’t think they’re going to just take the first offer that comes along. I think they’d have to feel a lot of pain, and that would be pain to their insureds, before they would think about just letting this entity, their entities, go away.