How Close Did We Come to Starting a Medical Malpractice Insurance Hard Market?

Medical malpractice insurance agents working at conference table With the recent government shut-down, how close did we come to creating a hard market for medical malpractice insurance?

Before we dive into the answer, let’s take a minute and provide some basic background information. First, let’s define what we mean when we say “hard” and “soft” markets. While these are medical malpractice insider terms, we feel that it is important that you know them.

Hard Market: A period in which rates are increasing and companies are generally raising rates on a whole-sale level.

Soft Market: A period in which rates are decreasing and companies are generally lowering rates on a whole-sale level.

We’ve been in a soft market for approximately the last seven years.

Second, let’s explain how medical malpractice insurance companies have such large amounts of money in reserves in case of payouts (it’s not just from your premiums!). As you may or may not know, insurance companies invest their premiums. And, one of the places they invest their premiums is in bonds.

If the government shut-down had lasted longer, and if the debt ceiling wasn’t raised, we most likely would have seen the US government default on their bonds. If the government had defaulted on their bonds, the bonds may have fallen in value, and the insurance companies would’ve had to compensate for that loss. THUS, the medical malpractice insurance companies may have had to raise their insurance rates, to make up for this loss in reserves. And this may have created a hard market, as companies may have scrambled to lift their reserves.

Finally, as you know, the government “kicked-the-can,” and we may still see this happen after the new year… We’ll keep you posted.