Medical Professional Liability
Change in Diagnosis

• Timothy Darragh
• February 2020
• 

Since the end of 2018 or so, most observers of the medical professional liability market thought signs indicated the long-lasting soft market was at the end of its cycle.

Now, even those who saw some slack in the market earlier in 2019 say the market has entered a hard period.

Looking back on the first half of 2019, Milliman actuary Susan Forray wrote in “Inside Medical Liability” there appeared to be “faint” signs of a hardening market. The industrywide combined ratio rose four percentage points to 107, but availability of coverage was abundant and in some regions, small rate increases were attainable, she wrote.

“We expect that it will be at least several years before the hard market appears on the horizon,” she wrote.

Come the end of the year, Forray said the picture is quite different.

“Things have changed a lot since that article was published,” she said in an email. “We're seeing rate increases in multiple states, which was only mildly true earlier this year [2019]. I expect additional rate action next year [2020]. I think it was fair to describe the market as 'end stage of soft' earlier this year [2019]. I would now describe it as 'beginning stage of hard.' ”

Brian Atchinson, chief executive officer of the Medical Professional Liability Association, said it's hard to paint the trend with a “broad brush, but there is a wide and growing sense we're past the bottom of the soft market.”

The reason for the change, Atchinson, Forray and others said, are higher jury awards, the eroding of tort reforms and the unfavorable attitudes toward institutions and corporations—the mark of social inflation.

“It's not surprising that frequency and severity are increasing in tandem,” Forray said. “Social inflation drives the likelihood of filing a claim, the likelihood of a successful recovery, and the size of the payment.”

Last October Aon reported the frequency and average severity of losses greater than $5 million continued to increase in 2019.

“After an increasing number of large medical malpractice verdicts following years of premium decreases, all stakeholders in malpractice liability are under pressure,” it said in its 2019 Hospital and Physician Benchmark Analysis. “These pressures include premium rate increases, self-insured retention increases and insurance carrier capacity reductions.”

In a third-quarter earnings call, W.R. Berkley President and Chief Executive Officer W. Robert Berkley said the company saw the warning signs of social inflation hitting the MPL sector.

Social inflation, he said, “is here and the industry is beginning to pay attention… We've been addressing it. Yes, in part through pricing. But the market will only let you do so much with pricing. We have been taking greater action through selection, terms and conditions, as well as attachment point.”

Part of the problem, ProAssurance Corp. President and Chief Executive Officer Edward “Ned” Rand said in a September conference call, is the breakdown of the doctor-patient relationship. Patients have become more likely to sue, and juries more likely to sympathize with them, because medical care is less relationship-driven than 10 years ago, Rand said at the Keefe, Bruyette &Woods Annual Insurance Conference.

At CNA, Chairman and CEO Dino Robusto told investors last October plaintiffs' attorneys have gotten more aggressive in pursuing MPL cases. “The plaintiffs bar has really targeted this industry,” said Robusto. “You can see it in the ad campaigns and the marketing, inviting more claimants to come forward.”

One case exemplifying the trend is a jury award in a case involving a misdiagnosis at Johns Hopkins Bayview Medical Center that led to the birth of a baby with brain damage. The jury this past summer awarded the family of the baby, who will need lifelong medical care, $229 million—including $25 million in noneconomic damages.

That amount was cut by Maryland's cap on damages for pain and suffering, but a judge left the rest of the award standing, which attorneys said was the largest MPL award in the United States.

A spokeswoman said the hospital network will continue to appeal the case.

Other signs indicating future rising costs cropped up during 2019.

In Kansas, the Supreme Court ruled a state law capping noneconomic damages at $250,000 violated a person's right to a trial.

That, in turn, contributed to a downgrading of the Kansas Medical Mutual Insurance Co.'s Best's Financial Strength Rating from A- (Excellent) to B++ (Good).

Oklahoma's Supreme Court also struck down its law capping noneconomic damage awards in bodily injury lawsuits, ruling the cap was a “special law” that treated classes of people differently.

And in Pennsylvania, the state supreme court last October invalidated as unconstitutional the state's seven-year statute of repose under its medical claims law, opening up the door to plaintiffs seeking redress of older cases.

Costs associated with defending against additional claims and larger awards represent dollars taken out of the health care system and redirected to the legal system, Atchinson said.

One major demographic change tipping the scales in plaintiffs' favor in malpractice cases, Atchinson said, is the increasing role of millennials in jury pools.

“We're looking at very serious changes with respect to the composition of juries,” he said. “Millennials take a very different view about awarding judgments against institutions, physicians, or other providers.”

While those court rulings garnered headlines, AM Best Associate Director Sharon Marks said the steady growth of social inflation over a period of time built up the headwinds facing the MPL sector now. Marks co-authored a Best's Special Report last year noting a negative outlook for the U.S. MPL insurance industry.

“This is not new,” she said. “It's a continuation of a trend that we referenced when we did our special report in May [2019].”

On the positive side, Marks said, “We do hear about rates starting to increase and see the segment's premium up in 2018 and through the first half of 2019. It's not across-the-board, but upward movement in rates after so many years of declines is a positive.

“I think the question is whether or not the rate increases are going to be enough to keep up with the increase in loss costs,” she said.

One thing that keeps the market out of crisis is the availability of MPL coverage, written by companies with “robust” capacity, she added.

“I think when you use the word 'crisis' that evokes a time when doctors couldn't find carriers to write their medical professional liability coverage,” Marks said. “There's still a lot of capacity in the marketplace.”

Atchinson agreed, saying availability of coverage is strong for physicians and hospitals.

Changes in the marketplace since the last crisis market of the early 2000s—health care consolidations, the rising role of nurse practitioners and physician's assistants and health care insurance alternatives in risk retention groups or excess and surplus lines—forced insurers to become more agile, he said. It's a “challenging” market, he said, but also one with opportunity.

MPL insurers will have to figure it out in a harder market, however.

“Cycles are inevitable,” he said. “Some are shorter; this has been a very long soft market. I think that no one really knows how long the next hard market will last or how severe it will be.”