Like many industries, the medical malpractice insurance industry is cyclical in nature. Each cycle lasts from two to ten years and is defined as either “hard” or “soft”. Hard markets with higher premiums, more severe losses, and restrictive underwriting, reflect the fact that insurance companies are losing profitability. Soft markets, on the other hand, characterized by low premiums and less strict underwriting rules, mean that insurance carriers are returning to profitability. We have been in a “soft” market in medical malpractice insurance for the past several years.
What Exactly is a Soft vs. Hard Market?
In a soft market, the following occurs:
- Lower insurance premiums;
- More expansive coverage;
- Flexible underwriting;
- Greater carrier capacity, resulting in more policies being written with higher limits; and
- Greater competition among insurers. More companies entering the marketplace.
In a hard market, we can expect:
- Higher insurance premiums;
- More stringent underwriting;
- Less insurer capacity, meaning fewer policies are written and carriers are hesitant to write higher limits; and
- Less competition among insurers. Companies flee the marketplace.
Base premiums for medical malpractice insurance are continuing their downward trend, as they have for several years now. In fact, according to industry officials, the current soft market has lasted twice as long and has been twice as deep as previous soft cycles. While rates have declined, their rate of decline has not been as precipitous as in the past. Companies still offer a variety of credits to lure the best physicians; however, there is evidence that the extent of the credits may be lessening. Companies have simply run out of ways to reduce premiums.
Most medical malpractice insurance companies see the trend of migration of independent physicians toward becoming employees of hospitals or large healthcare groups as the most worrisome trend to market share. This trend will likely deepen as the new healthcare law is implemented and the formation of Accountable Care Organizations begins to gain traction. It is likely that any hardening of the market will take several years, though. The industry as a whole is strong financially and has experienced these challenges before.
As an insurance agent that specializes in medical malpractice insurance, we can shop your policy among a stable of quality insurers.