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'Disturbing developments' lead liability insurer to push for 2nd 2020 rate hike

Social inflation helped drive the direct incurred loss ratio for the U.S. physicians' and surgeons' professional liability business to its highest level in nearly 15 years during the second quarter, but some states fared materially worse than others.

In Georgia, where the loss ratio in the business line exceeded 100% in four of the past five quarters, the state's largest carrier filed for its second rate increase thus far in 2020 because of what it described as a series of "disturbing developments" in the tort environment.

In a correspondence dated Oct. 7, MAG Mutual Insurance Co. told the Office of Insurance and Safety Fire Commissioner that its "rate need is required now and is driven by our updated claims experience in the increasingly-difficult Georgia litigation environment."

The company, which held 55.2% share of the Georgia physicians' and surgeons' liability market during the trailing-12-month period ended June 30, argued that the state had become "one of the worst" for medical professional liability claims as measured by the size and severity of paid claims. Among other things, the filing said, the average severity of paid claims increased by 48% during the past five years.

The Georgia regulator initially rejected MAG Mutual's rate request, citing a position of only allowing one rate hike per year; MAG Mutual implemented a 6.1% rate increase on Georgia physicians' and surgeons' liability business in April. Despite the rejection, the company was able to resubmit the filing for consideration. If approved, the proposed hike would take effect Dec. 1, and it would rank as MAG Mutual's largest such increase on that book of business in nearly 17 years.

If the latest request is not approved, MAG Mutual warned that its Georgia policyholders in April 2021 would be subjected to a rate increase "that could be double what we seek now" because annual loss trends may rise to 5.4%. In its most recent rate request, the company selected an annual loss trend of 2%, up from 1% in the previous filing.

The filing proposes a 3% base rate increase for all physician classes, with further adjustments to "better align the premium with the results for some of our higher-risk specialties," the company said. Rate changes could range as high as 20% for certain specialties like anesthesiology. The actuarial indication of rate need across the book is 15.9%.

The MAG Mutual proposal stands as the largest medical professional liability rate increase that is planned to take effect through April 1, 2021, according to S&P Global Market Intelligence, based on the prospective impact on the written premium associated with the book of business. Another company active in the Georgia physicians' and surgeons' market with a considerably smaller presence in the state, NORCAL Mutual Insurance Co., intends to implement a 9.8% rate increase in December. Its filing said that NORCAL's overall indication of rate need on the Georgia business was 106.8%.

Berkshire Hathaway Inc.'s Medical Protective Co. filed for a rate increase with an overall impact of 17%, effective at the start of 2021, for its small books of multi-specialty healthcare professionals and certified registered nurse anesthetist business in Georgia. It later agreed to lower the overall impact to 10%.

The Georgia direct incurred loss ratio in the physicians' and surgeons' liability business improved to 75.7% in the second quarter from 121.6% in the year-earlier period. But its loss ratio for the first half of 2020 was the second-highest in the U.S. at 107.7%. Iowa produced a loss ratio of nearly 125.8% for that period.

Nationally, the loss ratio in the business line for the second quarter was considerably lower at 57.2%, but that still represented the highest such result in any period since the third quarter of 2005. For the medical professional liability business overall, including coverage for hospitals, healthcare facilities and other healthcare professionals, the second quarter's countrywide direct incurred loss ratio of 62.6% also marked a near-15-year high.

While a loss ratio of that magnitude would be favorable in many business lines, medical professional liability business typically generates demonstrably higher levels of defense and cost-containment expenses, which are not included in that formula.

The effects of COVID-19-related premium relief measures on earned premiums contributed to the historically high loss ratios, but they were not wholly responsible for them. MAG Mutual, for instance, permitted its medical professional liability policyholders with annual premiums of less than $2 million to defer payments for nine months. Doctors Co. An Interinsurance Exchange, the No. 2 U.S. writer of physicians' and surgeons' liability business at the group level, reported a $17 million drag on earned premiums from its COVID-19 policyholder relief efforts.

Even if earned premiums had held steady with levels reported in the second quarter of 2019, however, both loss ratios still would have ranked as the highest in more than 14 years. That suggests the need for additional rate action is not limited to a single geography or carrier.