Medical Professional Liability Premium Growth Slowed in 2022
The medical professional liability insurance industry experienced double-digit premium growth in 2021, driven by firmer pricing and a return to pre-pandemic levels of healthcare utilization, but those gains waned last year, according to a new report published by the Medical Professional Liability (MPL) Association. The report examines direct premiums written for physicians and hospitals as well as other healthcare professionals and facilities.
“While the industry continues to show mid-single digit growth, most segments show much less growth than was recorded in 2021,” said Bill Burns, MPL Association vice president of research and analytics, who co-authored the report with Safoah Agyemang. “The slowdown in growth was particularly sharp for the segments of ‘other professionals’ and ‘other facilities,’ where premium increases were more than 25-percentage-points less than in the same period in 2021.”
According to the report, Where Are MPL Premiums Heading?, the industry’s premium growth finished strong in 2021 at 11%. It had averaged only 7% during the previous five years due to a combination of factors that included “a soft pricing environment that lasted for the better part of a decade, shrinkage in the number of independent physicians that purchase MPL insurance and a movement towards alternative insurance mechanisms such as captives.” The premium growth was driven by firmer prices in all sectors of the MPL market, the gradual return to pre-pandemic levels of healthcare utilization and a consumer price index that was running close to 7% — the highest rate of inflation since the early 1980s — while large-dollar “nuclear” verdicts continued to make headlines.
According to the report, the combination of factors that bolstered the MPL industry’s direct premiums written (DPW) in 2021 suggested premiums would continue to advance at a similar pace last year. They did not.
DPW Growth Falls by Almost 10%
During the first six months of 2021, the MPL industry’s DPW increased by 15.7%, according to the report. Premiums for the top 10 MPL insurance companies surged by 12% — with the top insurer, Berkshire Hathaway, posting a premium growth of $200 million, or 32%. During the same period in 2022, however, overall premium growth slowed to 6.5%, while premium growth for the top 10 MPL companies shrank to 5.1%. Berkshire Hathaway’s recorded premium changes were 30-percentage-points lower than during the first six months of 2021.
MPL industry DPW for physicians grew 13.8% in the first half of 2021, but only 2.5% during the same period in 2022. According to the data, most companies showed varying degrees of growth in both years, while several companies showed large growth in 2021 and decreases in 2022.
The report’s analysis of companies experiencing near- or above-average premium growth indicated they typically write regional business and have been taking rate increases regularly in their core states. The authors also noted that 12 physician-focused risk retention groups (RRGs) posted a 31% premium growth, or almost $48 million, during the first six months of 2022, which could signal that the business lost by the top 10 MPL companies has migrated to RRGs.
More of the Same Expected in 2023
The MPL industry has not generated an underwriting profit since 2013, and the authors of Where Are MPL Premiums Heading? expect the trend to continue in 2022 and 2023 due to high-levels of surplus and market competition.
“The most likely scenario is that the industry will stay the course and premium changes in 2023 will largely resemble those of 2022,” the report’s authors wrote. “The industry is well-capitalized, and competition remains strong both in the traditional and alternative markets. As such, raising prices too much for risks that can find coverage elsewhere could result in a loss of business that is unlikely to be recouped.”