What do snollygoster, grufeling, hum durgeon, and medical-malpractice insurance crisis have in common? Well, the first three are wonderful Old English words no longer used today. The last is a phrase that none of us has had to talk about for several years.
There may be physicians out there who have never experienced a malpractice crisis. Malpractice insurance rate increases and even coverage declinations may be just as foreign to them as a snollygoster!
Fortunately, malpractice insurance pricing has been stable and even declining for the past several years. But what’s in store for 2015? Will the good times continue or are there signs of trouble ahead?
The encouraging news is that all signs point to continued stability for at least another year or two. The only caveat is that no one really knows when the inevitable cycle will turn negative.
Unpredictable, Yet Inevitable Insurance Cycles
What causes these insurance cycles and why are they so difficult to manage and predict? Here is my short explanation. Let me first point out that insurance companies have two ways to stay profitable. First is through underwriting profits. This means collecting enough premium to cover the risks. Because medical malpractice is a “long-tail” risk, actual profitability often isn’t clear for years. Second is investment income on the collected premiums stored as surplus.
Pricing the risk means understanding the impact of tort reform, emerging risks with EHR, medical innovation, and ACA implementation. Will increased patient volume drive up claims? Will EHRs and complex patient hand-offs result in claims? Will tort reforms hold or will they be overturned? For an answer to any of these questions, you can turn to the expert of your choice. From what I can tell, there are about as many opinions as there are experts. And there a lot of both.
Competition is also a major driver in the malpractice insurance business. Even though there may be concerns with some of the above trends, insurers are doing all they can to hold on to profitable client bases. Having been through two market cycles now, I can tell you they change quickly because the industry maintains the status quo until one player blinks. Then there is a quick reaction. Smart physicians will be prepared for that.
What You Can Do
Here are a few things you should focus on now, while pricing is relatively low and plenty of insurers want you as a client. First, you should absolutely be insured with a highly rated (A.M. Best) insurer. Insurance ratings are a key indicator of an insurer’s ability to pay claims through good times and bad. Second, review your deductible (if any) and limits of liability. Now is a good time to reduce your risk. As the saying goes, when capital is “cheap,” don’t put yours at risk.
If you have a deductible, consider reducing or eliminating it. (These deductible plans rarely reward you with meaningful discounts anyway.) If you have reduced your limits in prior years to reduce your cost, now is a good time to review your needs and consider increased limits.
Also, review your practice scope and ensure you have full coverage for it. If you discover there are procedures you have not disclosed to your insurer, do so now. If you have considered expanding your practice with new procedures or opportunities, explore those now. Assuming you are a profitable client for your insurer, it will work hard to keep your business. Working with your insurance adviser, you will also discover a competitive insurance market with quality options at your fingertips.
So, let’s all ring in the New Year with cheers for a stable insurance outlook but with one eye toward the horizon! May you and yours have a great 2015.