Many physicians are enjoying historically low pricing in the med-mal market, but within the insurance industry some caution that what goes down must come up.
As we prepare to start a new year, one of the questions I get asked most often by brokers, physicians, and even colleagues is: "What are the factors that will drive malpractice this year?"
It's not surprising - every year I am asked the same thing. This year of course, the first full year providers are operating with meaningful use and the implications of the Affordable Care Act, is considerably different. Even some of the largest med-mal carriers are noting we almost need to take a wait and see attitude. Yes, our industry's experts have strong ideas and educated forecasts, but we haven't actually got a lot of experiential data yet.
My thought as we start the new year is that we take seriously what a lot of the industry experts predict, but that we also look at other factors driving the marketplace. Specifically those tangible factors we can see and therefore can address.
Historically Low Pricing
Pricing in the malpractice market is at an all-time low. Carriers and brokers are scrambling for market share and aggressively pricing and packaging programs. All that may seem great to physicians and medical practice administrators looking to save dollars wherever they can.
But we are at a dangerous point in the medical malpractice insurance market cycle. This record-breaking soft market was created because a.) Losses are declining in the market; b.) There's need and interest for new types of coverage from cyber-liability to RAC audits; and c.) Lots of new carriers and programs have been attracted to the market because it is so profitable.
However, per Economics 101, at some point excess capacity meets market saturation and ROI lines will begin to cross and trend downward, meaning that insurers will again turn to higher prices to increase profitability and ensure market stability.
I'm not saying this will happen in 2014. What I can say is that historically in the insurance world, what goes down, must come up. When the market hardens, prices increase and insurers become more selective about whom they insure. Buyers utilizing lower rated carriers, some of which could be unable to survive a harder market, could see those insurers fail or face difficulties paying claims. If that happens, some providers could have a tough time finding coverage.
Now, there is debate in the industry on when and even if the market will harden. Some say the market could remain competitive, or even see more price reductions; but a few voices are saying that there are some signs indicating prices will go up.
The Math Doesn't Add Up
Industry experts note that another factor influencing the market is that malpractice carriers are bringing a range of add-on coverages to the market - often offered for free - or at very low cost. For example, a carrier may offer a $50,000 cyber insurance limit. However, upon examination of the "math" for such offerings - in the event of a cyber-breach, if a physician has 10 to 15,000 current and former patients to inform - and as the average cost to notify patients of a cyber-breach is $2 to $3 each - that policy will barely cover the initial mailing and none of the other steps that must be taken to address a cyber-breach.
Conversely, highly rated carriers typically provide a comprehensive and integrated cyber-liability insurance package that provides full coverage including services such as an experienced legal counsel, a breach coach, crisis communication, patient notification and credit monitoring. Often, business interruption coverage is also included. And all of this is typically offered with limits up to $1 million and at competitive pricing, perhaps just a few dollars more than the lower rated carrier.
Take Advantage of Market
So, for all these reasons, I think what physicians, brokers, and risk managers should be doing in this soft market is to look for ways to better manage risk and create a better and stronger malpractice coverage program. That approach is a win no matter what happens in the insurance cycle.
Now is the time to exploit the savings provided in the current marketplace and to invest in improving the medical practice. For example, look at those issues that always seem to have an effect on malpractice such as common prescription errors, patient hand-off, and interpersonal communication skills with patients (look at yourself and your staff) - then ask where you can improve. Look for insurance carriers and brokers that will help in your effort. Most small to mid-size groups don't have risk managers offering educational resources. Many low-rates or newer carriers don't either. But the higher rated quality carriers - those that want to partner with you not just provide a product - do offer strong risk management programs. Take advantage of them!
While there's a lot of uncertainty in the market, I don't think anyone should be either overly concerned or overly complacent. Look for ways to improve your malpractice coverage. Work with brokers who really know the malpractice industry and can provide good counsel and advice and seek out top, quality carriers. Here's to a great 2014.