By Vanessa Orr
As if the past couple of years haven’t been difficult enough, physicians are now starting to feel the pain of medical professional liability rate increases.
“Major carriers are really concerned about current rate adequacy,” explained Medical Malpractice and Workers’ Compensation Specialist Tom Murphy at Danna-Gracey, the largest medical malpractice insurance agency in Florida. The company recently merged with Risk Strategies, one of the top 20 insurance brokerages in the country.
“Unlike other forms of insurance, medical professional liability is based on historic claim and loss trends, but because it can take five years or more to settle a claim—and this can be different in every state because of statutes of limitations—they don’t know if the rates they set today will be correct,” he added. “Until they see how claims play out, and what they need to pay out, they don’t know what their reserves should have been.”
Murphy explained that insurers look at the combined ratio, which includes all of their expenses, such as management costs and claims payments, to determine what premiums should be. “If the combined ratio is 100 percent, for every dollar they take in, they pay out one dollar,” he said. “If that number is over 100 percent, they are losing money.”
In 2020, medical professional liability carriers were working at a 118 percent combined ratio, so they began raising rates. Those who didn’t plan well have raised rates dramatically—in some cases, up to 50 percent. Companies who anticipated this issue began raising rates incrementally about three years ago by about 5 percent each year; something Murphy says that these companies will need to continue to do while the market is on a downward trend.
With the exception of 2021, the past four to five years have seen an increase in lawsuits, as well as in the amounts awarded to plaintiffs.
“Because of COVID, 2021 saw a decrease in lawsuits, but this is an anomaly; lawsuits are expected to accelerate again once courts are back in session,” said Murphy. “Right now, companies don’t know what the final outcome of claims relative to the pandemic will be.”
Paid indemnity, or what carriers have had to pay on average, has increased considerably over the past two decades. “Before the last hard market hit in 2000-01, the average claim payment was $250,000, which is what the average physician carries in liability,” said Murphy. “In 2020, that average was over $400,000.
Other factors affecting these lawsuits and the concurrent rise in insurance rates include social inflation and the rollback of tort reform in many states, including Florida.
“Everyone now has social media, and large settlements and jury awards have become commonplace,” said Murphy. “When a claim payment is made for $10 million, the average Joe thinks nothing of it. It has really changed people’s attitudes and beliefs about entitlement for compensation injuries and losses, and their willingness to pursue litigation. In the past, they were not so quick to pull the trigger.”
Before tort reforms were rolled back, there were limits on judgements, but now “shock” awards are more commonplace, especially with the proliferation of class-action lawsuits.
“Reptilian brain theory, which is a tactic used in jury trials to activate a juror’s survival instincts, is being used more often by lawyers to induce fear in order to overcome logic and reason,” said Murphy of these massive awards. “The goal of saying that a doctor is a danger to the community and patient safety, for example, is to create verdicts to punish, instead of compensate. It gets the jury angry, and they come back with larger verdicts.”
He adds that third-party litigation financing, in which private equity firms finance law firms in their litigation and then receive a cut of the award, is also growing. “This incentivizes lawsuits, which is a dangerous trend,” said Murphy.
A trend in increased defense costs has also resulted in premium increases; in 1991, defense costs averaged about $200,000 on closed claims; that number has increased to $1.2 million.
“While none of this is good news, the best way for physicians to weather the market is to look for higher ground—to stay with A-rated AM Best companies that have lasted through all the ups and downs, and who defend their physicians,” said Murphy. “You may pay a little higher premium to be with a better company, but they’ll be there when you need them.”
To contact Danna-Gracey, a Division of Risk Strategies, call Tom Murphy or Matt Gracey at (800) 966-2120 or visit www.dannagracey.com.