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The medical malpractice insurance market is hardening in response to an increase in claims with large payouts. Hospitals and health systems may feel the effects even if their own claims are stable.
Hospitals may see premium increases and other changes to their medical malpractice insurance coverage because of difficulties facing the insurance industry, including a rise in large claims.
Hospitals will experience an annual loss rate of $2,960 per occupied bed and $5,260 per employed physician for professional liability events in 2020, according to the recent Hospital and Physician Professional Liability report from Aon, a healthcare consulting firm.
Labor and delivery issues are more severe than claims related to other allegations, with an average total cost of more than $450,000, the report says. The average severity for children’s hospitals is growing at higher rates than other hospitals, the data indicate.
“While self-insured layers continue to see modest annual trends, the frequency and average severity of losses greater than $5 million continues to increase. After an increasing number of large medical malpractice verdicts following years of premium decreases, all stakeholders in malpractice liability are under pressure,” the report says. “These pressures include premium rate increases, self-insured retention increases, and insurance carrier capacity reductions.” (The report is available for purchase online at: https://aon.io/2rj3btT.)
Claims with payouts of up to $2 million, representing mostly the self-insured claims, have been holding steady, says Virginia Jones, FCAS, MAAA, an actuary for Aon in Chicago and lead author of the study. But claims of greater than $5 million are increasing, she says.
“Not only are we seeing more, but the average cost of a claim greater than $5 million is higher than it was five or six years ago,” Jones says. “That’s one part of what is making this a challenging market for medical malpractice and possibly driving some of the premium increases that are surprising people when they see their smaller claims holding steady.”
Hospitals are feeling additional pressure from carriers for risk reduction and data collection, and some insurers are limiting their coverage in certain markets, Jones notes.
“It’s important for the hospital risk managers to start thinking about what they can do to offset some of these changes imposed by the insurers, which are almost inevitable,” she says. “This will make risk managers even more important than ever, but they also have to get more creative and think outside the box to find solutions.”
Insurance policy review will be vital to getting the most coverage at the lowest cost, Jones says. Risk managers should look at issues such as batch coverage language, making sure it is appropriate for the hospital or health system. It also is important to cultivate good relationships with insurers, brokers, and actuarial consultants, Jones says.
“It takes a village to approach the market today. You want to create a cohesive team among all these players that a risk manager has to engage in the insurance process,” Jones says. “It also is important for risk managers to understand what is happening in the market so that they can communicate that up the line in their own organization, and so that they can respond most effectively to those market changes. The insurance coverage they have should work for their organization, their risk appetite, and that will require a cohesive approach that gets everyone on the same page to find the right solution.”
Financial Disclosure: Author Greg Freeman, Editor Jill Drachenberg, Editor Jonathan Springston, Editorial Group Manager Leslie Coplin, Accreditations Manager Amy Johnson, MSN, RN, CPN, and Nurse Planner Maureen Archambault report no consultant, stockholder, speaker’s bureau, research, or other financial relationships with companies having ties to this field of study. Consulting Editor Arnold Mackles, MD, MBA, LHRM, discloses that he is an author and advisory board member for The Sullivan Group and that he is owner, stockholder, presenter, author, and consultant for Innovative Healthcare Compliance Group.