Lawsuits Up, Investment Returns Down: Medical Malpractice Industry Facing Tough Future, Says Conning & Company
HARTFORD, Conn.--May 17, 2001--Nursing Home Liabilities Bringing Down Results in Medical
Malpractice Line
A star performer in the property-casualty sector for most of the past decade, the medical malpractice insurance industry is struggling with rapidly changing customer markets, according to a Conning & Company study. Decreases in investment income, coupled with increases in the severity of lawsuits and the rising costs of reinsurance, are very likely to make medical malpractice a difficult market for the foreseeable future.
According to the Conning study, "Medical Malpractice Insurance: A Prescription for Chaos," in 1999 the medical malpractice line of insurance ended a twelve-year streak of outperforming the property-casualty industry as a whole. This coincided with insurer reserve deficiencies growing to $1.7 billion, leaving insurers little margin for any negative surprises in 2001.
"From 1992-1997 medical malpractice insurers aggressively took down reserves to increase their investment portfolios," said Geri Riley, assistant vice president at Conning and author of the study. "This strategy helped them maximize their investments during the bull market." However, insurers have depleted reserves and must utilize surplus to reduce the deficiency.
Conning notes that the difficult state of the medical malpractice industry is due in part to disproportionate claims against nursing homes although hospitals also contributed to the medical malpractice "black hole." The loss ratio of the nursing home line was approximately 300% in 1999, an extreme number that accounted for much of the entire medical malpractice industry's disappointing combined ratio of 129.5%. Excluding nursing homes, the medical malpractice line would have produced a combined ratio of 108% - still a problem, but roughly in line with the combined ratio of 107.7% for combined all-lines.
Although nursing homes represented only 10% of the premium in the late 1990's, they will likely contribute 30% or more to the eventual accident-year losses. Conning believes that loss position will continue to be inadequate in this sector until the industry makes the necessary adjustments to loss reserves.
The Conning study also focuses on the forces that will most likely define the changing medical malpractice market (in order of immediacy): reinsurance affordability, government regulation, and the increased use of Internet by consumers, providers and insurers.
The Conning study, "Medical Malpractice Insurance: A Prescription for Chaos" is available from Conning & Company for $575 by calling toll free (888)707-1177 or (860)520-1245. A complete listing of all Conning Strategic Studies can also be found by visiting the company's website at www.conning.com.
About Conning & Company
Conning Corporation, through its subsidiaries, provides asset management services to insurance companies and institutional investors, manages private equity funds investing in financial services companies, and conducts in-depth research on the financial services industry. Conning & Company (member NASD/SIPC) is located at CityPlace II, 185 Asylum Street, Hartford, CT 06103.