How the pandemic may impact an already hardening market
Consider the degree of uncertainty COVID-19 has introduced while reading this statement by Tom Baker, a University of Pennsylvania Law School professor.
Baker says that “understanding how insurers define cost is, ‘key to understanding the insurance under-writing cycle’. He goes on to say that when, ‘…insurers set their prices, most of the costs of the insurance coverage will be incurred only in the future. As a result, insurers constantly have to imagine the future to decide how to price their products today. This situation creates a remarkably high degree of uncertainty... This uncertainty about insurance costs is the fuel that drives the underwriting cycle.’”
Baker’s statement was published in a three-part Antidote series on the hardening of Medical Professional Liability (MPL) insurance market months before the world was turned upside down by the pandemic we are still finding our way through.
At the time, no rate-making actuary could imagine that a world pandemic would consume the energy and resources of the health care system as a whole while causing many physicians, clinics and hospitals to incur an unprecedented loss of patients, revenue decreases and disruption of the normal pattern of health care delivery. And it is not over.
Underwriting is “stressed out”
The COVID-19 crisis will add pressure to an already “stressed out” underwriting environment. On a macro level, MPL insurance carriers are experiencing higher loss ratios that force increased premiums and more judicious underwriting in an effort to lower claims costs. This is what is referred to as a “Hard Market.” Carriers now are responding to demands of COVID-19 with premium relief and underwriting flexibility (e.g. waiving requests for supplemental information on telemedicine or cross-state boarder practice). This lowers their premium base and handicaps underwriting. The story is much more complicated when considering that insurance carriers collect premium now for claims that will be made in the future.
Susan Forray, FACS, MAAA, Principal and Consulting Actuary with Milliman published an article in May in which she examines the complexity of the COVID-19 impact, writing, “Actuaries are accustomed to pricing future costs based on past losses. But the COVID-19 pandemic has taught us the past is only one piece of data in making these estimates. Modeling the coronavirus pandemic itself is difficult, but modeling MPL costs affected by this pandemic is exacerbated by tort law changes, variations in effect among specialties, and an apparent reduction in current claims that may prove to be only a delay contributing to an increase in future claim frequency.”
What should you do now?
Continue to look for stability and security by renewing your coverage with a financially strong insurer; a long-term player committed to the MPL insurance marketplace. This is where an experienced broker can play a key role in helping you understand the quality of the insurers willing to do business with you and help you navigate your options.
“In this environment, I’ve never been more acutely aware of our mission at the Wisconsin Medical Society and WisMed Assure and I am proud of how we and our community of physicians have responded,” said Shawna Bertalot, WisMed Assure President.
Please contact Shawna Bertalot to discuss this article or your insurance needs and concerns.
Shawna Bertalot, CIC, ACI, President WisMed Assure
Other articles of interest
Blog post on MPL premium refunds related to healthcare deferral
Article on estimated a decrease in US health care costs for 2020 of $75 billion to $575 billion
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