By ROBERT HALL
Earlier this year, I wrote an article for The Orlando Medical News entitled Pain & Suffering. Within the piece, I alluded to my own experiences working as a managing agent for a national medical malpractice carrier. The story was about me being part of a claim management team that lost a medical malpractice case and we had to pay $5.3 million, plus legal expenses. Back in the late 1990s, the pain and suffering component was unlimited. The good news, in 2003 the Florida state legislature passed a law capping pain and suffering. From that time period forward, medical malpractice insurance premiums fell, the insurance market stabilized, and the related premiums were low by historical standards. However, in June 2017, the Florida Supreme Court overturned the pain and suffering caps. The impact on the medical malpractice insurance market has taken better than two years to develop, and now most malpractice carriers are experiencing deteriorating loss experience. Outside Florida, a perfect example comes from a July 2, 2019 article from the Baltimore Sun detailing a $229 million medical malpractice loss. (https://www.baltimoresun.com/maryland/baltimore-city/bs-md-ci-hopkins-medical-malpractice-record-20190702-story.html) Or, here in Florida, an April 17th, 2019 article from the Miami Herald detailing a $24.5 million medical malpractice loss. (https://www.miamiherald.com/news/local/community/broward/article229386529.html)
If you have lived in Florida over the past fifteen years, you will remember we have had a lucky streak with what, in the commercial insurance business, we define as catastrophic losses. Overall, the favorable CAT years resulted in a stable insurance market across all coverages. We all know that the weather patterns have shifted. Couple the two shock loss examples with several others and add the unfavorable CAT years and the logic dictates that the money or premium has to come from somewhere to absorb the losses and fund surplus for future expected losses. The insurance business has always been and will always be about actuarial science; the mathematical and statistical modeling for risk and uncertainty.
And to express my singular thought and point, we are heading into an uncertain period. In 2020, I expect all insurance coverage premiums to begin a steady increase, except for worker’s compensation insurance. Another component adding to this fire is the already hardened reinsurance market. I’ll not discuss that part for this article, but an easy way to think about reinsurance is that insurance carriers manage their insured book risk by purchasing contracts with reinsurers to minimize their exposures. For our purposes, let me state the medical malpractice insurance market is hardening. We are seeing carriers implement less favorable underwriting coverage and renewal pricing. We have large national markets taking steps to retrench and re-underwrite their books of business to improve long-term performance and assure credit rating services (like AM Best) they have taken steps to improve future results.
I think it important to note that hospitals are under the same financial and risk management pressures. If they purchase commercial insurance or manage an alternative risk model – captives, risk purchasing groups or risk retention groups – they have to budget for the needed funds to pay for insurance or fund the captive.
Over my 25-year career in medical malpractice placing coverage for physicians, hospitals and a wide range of medical facilities, I’ve seen and worked within a hard market. I know what it feels like, and I can assure anyone that reads this article, a broker or consultant does not want to present rate increases during a difficult healthcare delivery environment.
What to do?
Simple question, ask your broker why? In this coming market, I think practice administrators should expect multiple carrier quotes and the broker should provide a side-by-side comparison of each carrier’s financial situation, show their track record, and long-term business strategy. It’s a temptation, but do not go bare. The reason being for every dollar in premium a carrier takes in, about 50 percent goes back out as allocated legal fees. Can you fund a medical malpractice case for three years? And that assumes you get out of the case with a zero. Also, if your practice or facility has a temporary downturn, or unexpected expenses, communicate with your broker and insurance carriers. I know they want to work with you, remember it’s a financial issue that can be worked-out.
We work with multi-billion-dollar medical malpractice insurance markets that are experiencing financial turbulence. The numbers are larger, but they have all done one verb with our brokerage. They don’t hide; they communicate their situation. If some are downgraded, I’m not concerned because they have resources. I have a four-word recommendation, communicate, communicate, communicate and communicate.
Robert Hall, a broker in healthcare products for ARCW Insurance in Pinellas Park, has over twenty-four years of experience in the healthcare, life sciences, and long-term care liability insurance and risk management business. He holds the ARM designation and has developed an expertise in healthcare, having placed complete insurance programs for hospital systems and large physician groups. He has also created captive feasibility studies and other alternative risk models. He has a strong understanding of HMO Reinsurance and Provider Stop-loss. Contact him at robert@arcwinsurance.com
