Medical liability can’t get rate, suffers 8th year of underwriting loss
U.S. medical professional liability insurance (MPLI) suffered its eighth straight year of underwriting losses in 2023, including a shift to negative reserve development, with constrained rate growth well shy of adequacy, analysts at the Fitch ratings agency said of a review of 2023 statutory filings.
“Pricing trends remain positive for MPLI specialists, but their ability to move toward breakeven underwriting results and increase returns on capital amid market competition remains uncertain,” Fitch said in its review.
The industry’s statutory combined ratio rose seven points to 109.6% in 2023 to reverse a prior trend of margin improvement.
Rate growth lags and premium growth is further constrained by structural shifts in the market, Fitch said.
For the five years through Q1 2024, medical liability rates rose an average of 3.7%, most recently at an annual gain of 1.4%, data from the CIAB broker survey showed. Those modest advances have “somewhat lagged” the 8.1% 5Y average rate of growth for the full breadth of commercial lines, Fitch noted. Better results are possible. Fitch notes an 8% rate increase for ProAssurance in Q1 2024 and 7% for CNA Financial, with its greater facilities-focused, analysts noted.
Net written premium remains decidedly mid-single digit, even edging down to 4% in 2023 from 6% the year prior, constrained by “strategic challenges and limited growth opportunities,” analysts claimed.
Policy counts and premiums on individual providers are under pressure from market consolidation and physicians moving to larger medical groups that are more likely to self-insure via captives or other vehicles, Fitch noted of the lay of the land.
MPLI carriers are left to put “greater emphasis on retaining existing business rather than rate adequacy,” Fitch concluded.
Reserve inadequacies added to underwriting losses in 2023. Reserve bolstering added 1.7 points to the 2023 combined ratio versus favourable prior period development in preceding years. Some pre-pandemic reserve years have done poorly; Fitch cited a 12 point hike in the 2018 loss ratio since inception.
That appears to leave question marks in the Fitch view on reserve adequacy of more recent vintages. Initial reserving has been “more conservative” but Fitch needs “several years to gain a definitive assessment of reserve strength in these periods.”
Social and economic inflation took their standard top billing as severity drivers of loss development.
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