Claims inflation causing pain in healthcare insurance market

The US healthcare insurance market faces increasing uncertainty amid a tough economic landscape, increasing costs, and the specter of social inflation looming.

That’s the prognosis of Risk Placement Services (RPS). At a virtual roundtable checking the “vital signs” of healthcare insurance, RPS’s experts shared insights on the pressures mounting on the market.

Economic inflation and nuclear verdicts are two of the top factors driving up claims costs for carriers, leading to rising premiums.

“In the past six to 12 months, it’s become tougher and tougher for insurance carriers find ways to make profitability,” said James McNitt, area president and healthcare practice leader for RPS.

McNitt, who oversees the medical professional liability specialty niche at RPS, noted that economic inflation is the greatest concern among insurance companies today.

He explained that insurers need to pay claims based on premiums collected from past years, when the value of the dollar was much less than it is today.

“The premium that was collected then to pay for the claims today has had significant delta of about 10{a652ac39cb023ff8fd1cc85f4393f5b1bb70bf2f880b7bee35f712e4bd8633f7} to 15{a652ac39cb023ff8fd1cc85f4393f5b1bb70bf2f880b7bee35f712e4bd8633f7},” he said. “That’s a meaningful amount when you think of a large book of business.”

What is the impact of nuclear verdicts on the healthcare insurance market?

Social inflation continues to drive many nuclear verdicts in the healthcare industry, prompting many carriers to exit some areas of the market.

“I believe we’re at the most unpredictable time in the market that I’ve seen in decades,” said Karen Bennett, area senior vice president at RPS.

“We’ve seen a lot of cases that would have typically gone to court get settled because the plaintiff attorney or the plaintiff simply wants to get their money rather than waiting on the court systems to run their course.”

New regulations are also changing the caps that some states have on damages, which means the amount that can be paid out on claims is set to increase every year.

Areas with fragile patient populations, such as hospitals, senior living, and behavioral health, are more particular to the rise in nuclear verdicts, according to the RPS experts. Insurers are seeing higher claims severity among hospitals even if claims frequency has remained stable.

“The values continue to increase. The venue list continues to get bigger and bigger,” said Margaret Jacobs, RPS area senior vice president, citing Rhode Island, Pennsylvania, New Mexico, and Georgia as some the states seeing oversized verdicts.

“While it does seem bleak, there’s a lot of effort by our top carrier partners to curtail these issues,” McNitt said. “They’re spending a lot of their time, resources, and horsepower to make sure that the states don’t just get their way carte blanche.”

What should brokers know about navigating the healthcare market in 2023?

While many carriers are pulling out of areas plagued by nuclear verdicts, others are hiking their rates to stay afloat. According to RPS, the market saw a roughly 20{a652ac39cb023ff8fd1cc85f4393f5b1bb70bf2f880b7bee35f712e4bd8633f7} increase in premiums last year but suggested that pricing is starting to stabilize.

On the other hand, there’s no shortage in capacity, partly due to new players entering the healthcare space.

“Even if a carrier that provided $20 million in capacity last year is only providing $10 million this year, you can find the missing $10 million in the marketplace, so that’s good news,” said Jacobs.

“I think 2023 is easier than last year for hospitals. We have solutions, we have new markets, and we’re able to negotiate more.”

A ‘bright spot’ in the healthcare market

Despite pressures in the market, one sector is creating a bright spot for insurers: allied healthcare.

With a “more benign” claims environment compared to hospitals and other health facilities, allied healthcare is relatively free from the threat of nuclear verdicts, RPS noted.

Allied health companies offer essential services for the diagnosis, treatment, and prevention of disease. The sector includes professionals that aren’t doctors, nurses, dentists, or pharmacists.

McNitt said they are seeing softening conditions in the wider allied healthcare space. With lower risk exposure to social inflation, there’s less pressure on underwriting profitability for carriers. This means more capacity and premiums that aren’t rising as quickly as other areas in the market.

“Everyone [carriers] has their eye on growth there. They’re not just trying to grow based on rate but based on new business. So, there’s still an appetite,” McNitt said.

What are your thoughts on the state of the US healthcare market? Let us know in the comments.