Across the country, malpractice insurance rates are starting to creep up little by little. And the reason for this (at least, in part) is due to a hardening market. So, what exactly is a hard market in malpractice insurance terms? And why does it matter to you? Today we’re going to unpack this topic and give you a simplified definition of a hard market PLUS give you some tips on how you can navigate it successfully – so that you can ensure that you’ll stay protected while keeping your rates as low as possible.
All industries experience cycles in their business – times when business is good, and times when business is a bit more difficult. This is particularly true of the insurance industry. Throughout history, the malpractice insurance market has experienced many ups and downs marked by an expansion and a contraction of insurance availability.
The way that we often describe these cycles is by calling them either a soft market or a hard market. So, let’s unpack these a little…
A soft market typically looks like this:
- Lower insurance premiums
- Broader coverage (better, more customer-friendly policies)
- Relaxed underwriting criteria (which means underwriting is easier)
- Increased capacity (which means insurance carriers write more policies and offer higher limits)
- More carrier options and increased competition (which helps keep your rates down)
On the other hand, a hard market typically looks like this:
- Higher insurance premiums
- More limited policy options (not the broad coverage that we saw before)
- More stringent underwriting criteria (which means underwriting is more difficult)
- Reduced capacity (which means insurance carriers write less insurance policies and are less willing to offer higher policy limits)
- Fewer carrier options and less competition among insurance carriers (which drives rates up)
In times of a soft market, there is generally an active, growing economy with good interest rates, the insurance carriers have abundant capital to insure, and there is low claim activity.
But in times of a hardening market, there is usually more economic uncertainty, shrinking capital, increased claim activity, and large, catastrophic (or major social) events.
So, when a market begins to harden, insurance carriers “batten down the hatches” and tighten up their underwriting practices – which can have a real impact on healthcare providers.
We’re starting to see the beginning of a hardening market in the malpractice insurance industry, although right now we’re still in the early stages.
Rates are starting to go up, but there are still pockets where malpractice premiums are relatively competitive – which shows that the market it hasn’t shifted completely.
So, what does this mean for you? As the malpractice insurance market begins to harden, you may or may not experience any immediate changes to your coverage. But what you might see in the coming years is slightly higher premiums, underwriters that are a little bit harder to work with (meaning they require MORE documentation for simple changes and take longer to complete them), and potentially fewer options to consider when you’re shopping around.
When the malpractice market hardens, we usually see a few carriers go out of business. These are typically the smaller carriers, risk retention groups, or other companies who had been struggling financially. And the carrier who are still IN the game stop playing offense and play more defense.
So, how do you position yourself for success in the future?
First, just be aware of what’s happening in the market so you’re not caught off guard if you see changes at your next renewal.
If you’re working with an agent or broker, they can keep you in the loop on what to expect and offer suggestions on how to make changes to your coverage to ensure you’re still protected adequately.
Second, shop around SMARTLY.
If you start to see your rate go up, or experience other changes or limitations in your policy that don’t work for you, it might be time to look for other options. But, be WISE about how you do it.
We don’t recommend that doctors jump ship just because their rate goes up slightly. Understand that you may need to ride the wave a bit and that rates can fluctuate up or down, even in times where the market is soft.
Shopping around too often can have its disadvantages. Carriers do keep track of how often you inquire with them and if an underwriter sees that you’ve approached them for a quote every single year, but you never actually buy from them, it’s kind of like the boy who cried wolf. They don’t really consider you a serious buyer and they may be less willing to offer you a quick, competitively priced quote.
In fact, I’ve even seen carriers decline offering a quote to a doctor because they aren’t interested in insuring someone who isn’t loyal.. and who just jumps from carrier to carrier.
Also keep in mind that every time you go to market, it’s a lot of work for your agent. And they don’t make any more money when they flip you to a new company… in fact, they make less. So, you’re asking your agent to do a lot of leg work, just to move you to a company with a lower price, which means less commission for them.
However, if you do feel that it’s time to look at other options, or your agent recommends that you do so, it IS smart for you to work collaboratively with your broker to shop around, compare coverage options and rates, and make a move to a company that you see a better future with going forward.
Our agency generally recommends that doctors shop around every 3 years as a best practice. You don’t necessarily need to move to a new company every 3 years, but it IS important that you gauge the marketplace and keep an eye on what’s happening. This is a healthy exercise for all medical practices and individual providers.