An Overview of the Medical Professional Liability (MPL) Business Line
While Medical Professional Liability (MPL, also called Medical Malpractice or Med Mal) is the smallest of the “major” property/casualty lines of business, representing only around 1% of total U.S. industry direct and net premiums written in 2023, ALIRT Research tends to receive a disproportionate amount of queries on insurers involved in the business.
This is due to historically volatile financial results for the sector’s insurers, reflecting their on balance higher risk profile and the tendency for periods of aggressive litigation around medical mishaps.
Specifically, the Medical Malpractice market has weathered a number of crises, in particular in 1975 and early 2000s when incurred losses spiked, statutory surplus for many Med Mal insurers declined sharply and approved rate increases were unable to keep pace with rising losses. The result was the failure of a number of Med Mal insurers, reducing the industry’s already strained capacity to underwrite the business in a number of states.
The loss of Med Mal underwriting capacity quickly becomes a societal problem, given that the inability of medical professionals to obtain liability protection at affordable rates often results in dislocation in needed care (especially for higher-risk specialties such as obstetrics/gynecology, orthopedics, anesthesiology, urology, and general and specialized surgery, among others). This dislocation can include premature retirement or redomestication to states where Med Mal insurance is more plentiful and/or coverage less costly.
Insurance regulators, for their part, must juggle the competing goals of ensuring affordable insurance coverage for a state’s medical community while maintaining a healthy insurance marketplace where insurers are able (and willing) to provide capacity to meet medical malpractice insurance needs (which can often mean higher rates).
Over the years, many potential solutions have been proposed to resolve this predicament, including arbitration/mediation, limiting contingency fees, capping losses, tort reform, risk-sharing mechanisms (insurers of last resort) and allowing insurers that are in financial distress substantial time to come back into compliance with existing regulatory requirements, specifically risk-based capital (RBC) requirements. This last option remains a not uncommon practice today.
Lastly, the various crises in the U.S. Med Mal market have led to the emergence of new insurers, often in the form of Risk Retention Groups (RRGs) which are generally quite small and unrated entities that target specific types of medical care professionals or insureds with common ownership interests. In fact, as pointed out in our periodic RRG studies[1], the Med Mal line accounted for 54% of all RRG direct written premium in 2022.
ALIRT clients have been especially interested in tracking the fortunes of RRGs, given their small size, mono-line focus, and at times aggressive pricing vis-à-vis more established Med Mal carriers.
[1] See our Risk Retention Group Market Overview (May 3, 2023)