2022 Medical Malpractice Insurance Rates: What the data tells us
Our take: The data in this expansive report shows us that we should continue to see medical malpractice insurance rates increase over the next 12-16 months. This is not great news for doctors and other healthcare providers as they will likely see their premiums rise. We expect to see an increase in physicians shopping their malpractice coverage as they realize there are numerous alternatives that could help keep these increases to a minimum. We don’t expect the allied health professionals to increase their shopping due to their premiums, on average, being much less than doctors. Head over to our medical malpractice insurance costs page to learn more about current pricing per state.
The frequency of medical professional liability claims is expected to remain flat, while hospital and physician liability loss rates are expected to increase by 3% annually, according to the 2021-2022 Aon/ASHRM Hospital & Physician Professional Liability Benchmark Report. The report was published by Aon plc. in conjunction with the American Society for Healthcare Risk Management (ASHRM).
The new report analyzes Aon’s hospital professional liability (HPL) and physician professional liability (PPL) claims database, which consists of nearly 104,000 non-zero claims that occurred between 2011 and 2020 and are worth $23.8 billion in incurred losses.
For most of the participating healthcare organizations, management of professional liability risk involves a combination of self-insurance and commercial insurance coverage. In a typical program, the healthcare system retains risk for claims up to a per-occurrence “attachment point” or “self-insured retention” (SIR). Commercial insurance coverage applies in excess of the SIR. Commercial coverage is generally subject to a per-occurrence limit and is provided by multiple insurance policies issued by multiple carriers, while the underlying coverage is provided by a captive.
According to the report, since the market began hardening (rates are increasing) in the second quarter of 2019, insurance renewals have experienced increases in SIRs, higher premium rates and smaller insured limit layers to individual clients. The report also noted that several insurance carriers stopped underwriting hospital professional liability risks in the past 12 months, which led to some reduction in the availability of insured limits.
For the 2022 calendar/accident year, Aon predicts the countrywide medical liability annual loss rate, limited to $2 million per occurrence, will be $3,420 per occupied bed equivalent (OBE) and $4,700 per Class 1 (family practice; no surgery) employed physician. The state projected to have the most expensive loss rates in 2022 is Florida — with South Florida calculated to incur a $10,460 loss rate per OBE and the rest of the state a $6,910 per OBE.
Aon forecasts an annual 3% increase in HPL and PPL loss rates, which it attributes to equivalent projected increases in claim severity. Also noted is that employed physicians experience more expense-only claims as only 21% of PPL claims close with an indemnity payment, compared to 43% for HPL.
The Benchmark Report included an analysis by Beazley plc. of its HPL claim database, which represents more than 50% of all U.S. hospital beds and more than 1 million unique claims. The insurer’s data predicts a more robust 5% annual inflationary increase in the cost of HPL claims. The report suggests a reason for the increase: “Higher jury awards, together with evidence of runaway verdict values, are driving increased expectations on behalf of the plaintiffs’ bar as well as increased downside risk (i.e. larger realistic worst-case outcomes) for defendant hospitals, culminating in increased settlement values.” This inflationary trend is driving higher reinsurance costs.
As in previous reports, “treatment-related issue” was the most frequently reported cause of a claim, measured as a proportion of overall claim count (39.1%) and overall claims cost (35%). The most expensive claim cost (indemnity plus expense) was “labor and delivery-related issue,” at an average of $462,000. It was the fourth-most-frequent cause of loss (7.2%) and had the third-highest proportion of total claim cost dollars (15.4%). Claim severity for obstetric claims is 60% higher than the overall HPL severity.
Rising Premium Rates
According to Aon’s analysis, health systems’ average medical liability premium rates for the current policy period increased for 60 of 67 respondents (the remaining seven remained flat). All providers combined currently pay an average $50,000 per $1 million in limits, an increase of 22% from $42,000 the previous year. Forty-nine respondents reported paying less than $50,000 for every $1 million in limits, while the other 18 systems pay more.
An included analysis of premium adequacy by Sompo International focused on 90 nationwide healthcare systems it has consistently received exposure and loss information from during the past 10 years, attributing recent and projected rate increases to “the inadequacy of SIRs in relation to exposure growth and inflation, and an increasing frequency of severity of losses above SIRs and into insured layers.”
Sompos reviewed 11,255 claims with incurred losses greater than $1 million within its dataset, which totaled more than $34.6 billion. The insurer determined that 960 of those claims pierced their SIRs, totaling $4.3 billion in incurred losses above those levels. Thirty-eight claims settled for $10 million or higher in 2019 (2020 was excluded due to its immaturity and the court-closing effect of the pandemic), more than triple the 11 claims closed for at least $10 million in 2010.
Sompos anticipates a continued hardening of the HPL market due to SIRs not keeping pace with exposure, inflation or claim severity growth. Policyholders with retentions ranging from $5 million to $10 million experienced a 38% increase in exposures between 2010 and 2020, but retentions increased by an average of only 12%. For those with retentions of $10 million or more, exposures increased by 46% during the same period, while retentions increased by only 16%. SIRs increased to $7.8 million last year, up from $6.9 million in 2019.
With these results, Sompos reports the industry can expect continued market hardening as carriers push for higher SIRs, increased pricing, and more restrictive coverage terms and conditions to manage the increasing claim severity.
The COVID Effect
Aon’s database contains 18 closed claims pertaining to patients confirmed — or suspected — to have contracted COVID-19 in 2020. Twelve of those claims settled for less than $5,000, five closed for between $5,000 and $20,000, and one exceeded $100,000. Aon attributes the low number of pandemic-related claims to the liability shield offered to healthcare workers by the federal government’s Public Readiness & Emergency Preparedness (PREP) Act and similar state-level malpractice protections.
Similar to the reduction in closed claims, a shrink in the number of claims was reported within six months of occurrence in 2020. A total of 4,718 claim counts were reported that year — 14% lower than the average of 5,514 counts reported between 2015 and 2019. Comparably, only 826 claims closed within six months of occurrence in 2020, 56% fewer than the average of 1,859 annually between 2015 and 2019.
“The current thinking in the industry is that COVID-19 related claims that occurred last year may be filed by plaintiffs closer to the expiration of the statute of limitations in the hope of securing better outcomes as the ‘hero’ effect enjoyed by frontline healthcare workers subsides,” according to the Benchmark Report.