Medical malpractice insurers may be seeing an opportunity for the market to become profitable, according to a new study, but seizing it will require insurers to recognize the unique aspects of the market.

The study, "Medical Malpractice: Getting Ahead of the Curve," conducted by Conning Research and Consulting Inc., noted that medical malpractice insurance has been stable since its last market disruption in 2000 and that the stage may be set for insurers to achieve profitable growth.

"The medical malpractice industry has changed structurally since the market crisis of the early 2000s and is poised for long-term profitable growth," said Mark Jablonowski, an analyst at Conning.

But he noted that "the industry has been here before, with brief episodes of profitability that disintegrate into severe unprofitability. Achieving long-term growth will depend on insurers' ability to maintain a commitment to adequate pricing and careful underwriting of this highly specialized line."

In the study, Conning found that medical malpractice has had increasing profitability since its most recent "crisis," driven by increased premiums.

Also helping drive profitability has been a stabilizing of investment income, albeit at what the study calls "a modest level," and increasingly stabilized losses as a result of reforms that restricted lawsuits.

Conning also noted that the structure of the market itself has changed, with specialty insurers, typically owned by or affiliated with doctors, replacing multiline companies in the market.

That specialization can serve as a help, noted Stephan Christiansen, Conning director of research, but it can also become a source of difficulty if medical malpractice insurers fall into the trap of being too concentrated and can't adequately spread their risk.

"Medical malpractice insurance is now an industry dominated by specialist companies, often in the form of physician-owned mutuals," he said. "This emphasis on specialization allows insurers to control losses better, identify loss trends and moderate market swings.

"Yet this specialization also increases state concentration and the potential for more dramatic competitive interactions--both positive and negative."

If insurers continue to price adequately and implement the lessons of the past, then Conning said the market could achieve stable growth.

However, another scenario exists, Conning noted, in which the market returns to "crisis" levels. The "crisis" scenario, Conning said in the report, could occur is insurers' return to irresponsible pricing decisions that fail to account for underlying loss uncertainties or an "unchecked quest for market share" in a specialized market where the actions of one player could have a major impact on others.

Special Reports /

Med-Mal Insurers Set To Make A Buck, Says Conning

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