As the first quarter of 2016 draws to a close and many of our clients face mid-year renewals, we want to focus on the healthcare insurance market.
On a macro basis, the overall U.S. insurance market remains stable, with near-record capacity of $664 billion and 4.1 percent premium growth through Q3 2015 (1). Commercial P&C rates are trending downward in the low single digits (2).
However, the insurance markets that address the unique risks facing healthcare organizations have their own dynamics. A.M. Best predicts the final 2015 combined ratio for medical malpractice will have increased 2.7 percentage points year-over-year, reaching 96.7 percent(3). Keep in mind that the industry’s medical malpractice combined ratio was 77.4 percent in 2008(4).
Furthermore, medical malpractice premiums written by domestic markets in 2015 are expected to follow what has been a long, linearly decreasing pattern. Premiums in 2008 were $11.2 billion; premiums in 2015 are expected to be only $9.4 billion, a 16-percent decline over this time period (5).
One of the factors driving premium decreases is the trend toward physician employment, leaving fewer independent physicians buying their own coverage in the market. Moreover, we have seen tremendous consolidation throughout the U.S. hospital market, coupled with dozens of announcements of hospital closings in recent years.
Industry consolidations have obviously not been limited to hospitals. Simply put, we have few buyers in the market, especially with regard to what we would consider high-rate premium products. We have seen industry growth in the areas of physician extenders and home health operators, but these risk classes carry low rates compared to the physicians and hospitals. They also purchase lower limits than the higher-risk categories of physicians and hospitals.
Thus, abundant supply and weakened demand leaves buyers with a stable market ahead for the remainder of 2016. Yet, the key challenge of maintaining adequate profitability should cause buyers to manage their expectations about what lies ahead.
Our advice: select your carriers wisely and lock-in terms for the longest duration possible. Multi-year deals are selectively available in the market and they are looking more advantageous to buyers each day.
(1) The Insurance Information Institute
(2) The Council of Insurance Agents & Brokers
(3) Medical Liability Monitor, July 2015
(4) A.M. Best 2014
(5) National Association of Insurance Commissioners