How the Medical Professional Liability (MPL) insurance community has responded to the two extremes continues to play out in the marketplace. In general, for physicians responding and treating COVID-19, the MPL insurers have agreed to cover those practitioners fully for their activities. In addition, many states have attempted to provide physicians (and ancillary healthcare providers) with immunity if claims arise from this work. This will certainly be tested as we exit the crisis, but overall, we feel comfortable that those on the front lines will be protected one way or another. As a general safeguard, physicians should confirm with their MPL insurer that they are covered for their current or new activities.
Updates to MPL insurance coverageInitially, there was a rush of questions and concerns over insurance coverage, but insurers are responding positively to changes in operations. We’re now seeing carriers share information for physicians on specific situations weekly, and we recommend that they notify their insurance agent, broker and carrier on anything new they’re doing to be confident that they are covered.
For physicians who have seen a dramatic reduction in their practices, operating under restrictions that prohibit elective procedures, things are very different. Many elective procedures, like hip replacement surgeries or colonoscopies, are prohibited for now. This subset of physicians with dramatically reduced workloads is estimated at 35 to 50% of the total physician population, with an average reduced patient volume of 75 to 85%. Most of these physicians are in private practice, providing most of their care outside of the hospital setting.
Many states are now planning to open up elective healthcare in early to mid-May 2020, so we expect this to correct itself sometime during the summer.
Premium payment deferment and exposure baseThere are two key issues physicians with reduced practice time should consider. These are the timing of premium payments, and paying the appropriate premium based on their exposure base.
First, most mainstream MPL insurers are allowing for their clients to defer payment of their premiums till at least July 1, 2020 or even later. This gives clients and their representation adequate additional time to evaluate the overall reduction in practice, and work with the insurers to create an appropriate premium for that exposure. It also allows the clients to smooth cash flow at a time where their revenues are down sharply.
Second, an appropriate price should be charged based on the reduction in exposures. Considering claims-made coverage is predominant in MPL, the risk within the current policy is principally derived from prior acts or occurrences from previous years. Therefore, insurers are reluctant to simply reduce prices when a steady stream of claims are expected from prior work. So, unlike auto premiums that provide coverage when you get into an accident, MPL policies respond to past occurrences (sometimes years ago) in which the actual claim for damages is filed today. This is why it’s not logical for insurers of physicians to cut or lower their premiums to directly with the exposure reduction now. Most insurers have developed crediting methods to give their clients relief, regardless of this ‘catch-22’ scenario. Credits range from 25 to 50% off. We fully expect for this issue to evolve continually over the early summer as clarity emerges on reduction of overall practice time as compared to prior periods.
The future of MPL claim volumes due to COVID-19
It will be interesting to see how the claims volume changes over the next two years. Claims that have been delayed during the depths of the COVID-19 pandemic will begin to flow in. Claims relating to the treatment of COVID-19 patients, will start to flow in. The dramatic uptick in pent-up demand for elective healthcare will certainly create more claims activity. Physicians will be busier than ever once Americans start to regularly return to the doctors’ offices. It is logical that claims experience will be on the rise again later in 2020 and beyond, from both a frequency and severity perspective.
There are several factors that could create a ‘perfect-storm’ for price increases in 2021 in the MPL marketplace. Prior to the COVID-19 pandemic, the insurance market was hardening, largely due to frequency of severity of lawsuits in recent years. During COVID-19, insurers are reducing and deferring premiums to help buyers, counter to their true business need for more capital. Claims activity may jump dramatically as we exist the crisis from both COVID-19 related claims and the cases deferred due to the shutdown of our economy. These three points lead to what could be a dramatic increased need for price increases in 2021. The temporary price cuts due to exposure reduction will be absolutely be short lived.
Through all this uncertainty, once thing is certain. Physicians should be communicating with their broker representation actively to look for discounts with their carriers and brokers to understand what options are available for their unique situation.
This is an evolving risk that Gallagher continues to monitor through the CDC and the WHO. Please visit ajg.com/us/pandemic-preparedness for the latest information, or contact: