By Jeff Brunken, President and CEO, The MGIS Companies
A recent headline regarding an important upcoming vote in California grabbed my attention: “Proposition 46: The Nation’s Eyes on California.” Passage of Prop 46 would raise the caps on non-economic damages in malpractice cases from $250,000 to $1.1M virtually overnight.
My purpose here isn’t to present an analysis of Prop 46, but instead to suggest that it brings into sharp focus some of the issues and opportunities that clients, insurers and brokers face as a result of the prolonged soft medical malpractice insurance market we are traversing − specifically highlighting when value ironically becomes a bargain.
LOW PRICES: THE GOOD, THE BAD AND THE RISKY
In many ways this prolonged soft market has been a bonanza for customers. Intense competition among insurers has continued to drive prices down, providing attractive cost savings on malpractice premiums. While insurers are predictably not thrilled about lower prices, the impacts actually go much deeper. The California scenario illustrates a key potential issue. If Prop 46 passes, clients and insurers will immediately see their risk exposure increase over fourfold. More than a mere inconvenience, this type of change can seriously challenge the financial viability of smaller, lower-capitalized insurers. Depending on circumstances, they may be unable to offer insurance to new clients, or may be forced from the market altogether. While not as dramatic as Prop 46, the prolonged soft market continues to put significant financial pressure on smaller insurers – whether in California or elsewhere. Many aren’t rated by the major financial rating services (e.g. A.M. Best), making it difficult for clients to get a clear picture of the financial strength behind their medical malpractice insurance policies. Prior experience suggests that many are uncomfortably close to or over the limits of reasonable financial security.
BARGAIN VALUE? IT’S YOUR CHOICE
So, how does this affect doctors and their brokers? On the plus side, you have the opportunity to purchase high value coverage from highly-rated insurers at relative bargain prices. A prolonged soft market has encouraged even top rated insurers to offer highly competitive pricing on coverage that fits the need. For little or no additional cost, a customer can purchase coverage from a highly (A.M. Best) rated insurer and avoid the peril of finding themselves without coverage – either because a lower-rated insurer cannot weather the financial storm, or because when the market turns around, they are unable to find a insurer willing to ensure them at a reasonable cost. On the minus side, with so many low priced choices, it easy to be lulled into postponing moving to value. When the market turns, many clients can find themselves stuck with higher premiums with a financially weak insurer and no options to move up.
THE BOTTOM LINE
No one knows when this soft, competitive market cycle will end. That means for the foreseeable future there will continue to be intense competition for your business. Don’t wait for a Prop 46 size event to motivate action that may be too little, too late. Leverage this time to contact your broker and get the most value from your insurance purchase—not just the best price.